from the aol board:
August 18, 1999
STREET WISE by Sam Jaffe
TicketMaster City Search: Fewer Foes, Brighter Future?
With AOL's Digital Cities its only real rival now, TMCS's battered stock may be the big beneficiary
One of the pleasant things about TicketMaster City Search (TMCS is that it's one of the few Internet companies whose stock wasn't flattened by the "correction" that started in April. But that's only because the stock was already devastated by the fallout from its broken three-way merger in February with Lycos (LCOS) and USA Networks (USAI) . At the beginning of this year, it sold for as high as $80. It closed on Tuesday, Aug. 17, at $28.13.
In the last two months, though, events have happened faster than investors have been able to react, making TMCS a stock that could still climb out of the foxhole once its shell-shocked shareholders get a chance to strap their boots back on.
TMCS is one of the earliest entrants into the battleground of localized content, guides to the local scene in, say, Los Angeles or Chicago. But in the last year, most of the competitors have failed to catch on. Suddenly, only two are left: TMCS and America Online's (AOL) Digital Cities.
MICROSOFT SWITCH. The cutting down began in June, when TMCS announced that it was purchasing its largest rival, Microsoft's (MSFT) Sidewalk, for $240 million in stock. That deal spelled an end to Microsoft's ill-fated attempt to produce localized content. TMCS also sealed a deal with Microsoft's MSN portal, which, on top of similar agreements with Lycos and Yahoo! (YHOO), provided an entr‚e to enormous traffic. "The deal is important not just
because they added to their assets," says Thomas Weisel Partners analyst Gordon Hodge, who raised his rating on the stock to a strong buy after the Sidewalk purchase. "But they eliminated a competitor and turned it into a partner. Anyone who no longer has to compete with Microsoft has just substantially increased the value of their business."
Then in early August, the strongest newspaper attempt at making local portals work, Knight-Ridder's (KRI) Real Cities announced a partnership with America Online, effectively joining Real Cities with Digital Cities. Many other newspapers have their own single-city local portal contender, but no other chain has formed a national network of such sites.
So that leaves AOL and TMCS with a lock on the market. But what exactly is the market? Originally, local portals were supposed to be the Web's answer to alternative weeklies: what to see and do in your city, plus a bit of edgy journalistic content. The problem was that these companies wanted to get their revenue by selling advertising, but the ad base simply isn't there yet. It's no coincidence that the two companies left standing are the ones that
have successfully stirred some E-commerce into their revenue-generation pot.
OVERACHIEVER. The part of TMCS's business that makes analysts salivate is ticketing. In addition to local entertainment and service guides that are at least partially supported by advertising, TMCS sells tickets to local events. That business' growth has surpassed everyone's projections. "At the time of our initial public offering [in December, 1998], ticketing accounted for 40% of overall revenue," says CEO Charles Conn. "Last quarter [the
second quarter of 1999], it already accounted for 70% of revenue. And the other portions of revenue have grown also. It's just that ticketing has grown at an astounding rate." In fact, for the last three years, online ticket sales have grown at a 300% annual clip for TMCS, with no end in sight.
It makes sense too: Few things are better suited for E-commerce than buying a ticket for a coming event. Since TicketMaster already has a large majority of the market share for tickets bought via telephone or at retail outlets such as record stores (the exact size of that market is a subject of some debate), it's natural for people to turn to the same company when they want to buy a ticket online.
TMCS's other line of business, selling local advertising and teaming with local E-commerce partners, is also growing. Weisel's Hodge sees that as the icing on the TMCS cake. "The growing and profitable ticketing business provides shareholders with a very comfortable franchise," says Hodge. "But by 2001, the local content business should be profitable, and that could, in the long run, outpace the ticketing business."
LOSSES AHEAD. TMCS has few competitors in the ticketing business. AOL has merged its Moviefone unit with Digital Cities, which gives it a base from which to sell tickets to other events, though it so far hasn't branched beyond movies. Tickets.com, a startup that's trying to break into the ticketing business, has garnered backing from Excite@Home, which is one of the few portals not to have signed a partnership with TMCS. In addition,
individual arenas and venues are trying to sell their own tickets online. But nothing compares to TicketMaster's reach and tradition as the largest seller of tickets in the U.S.
Most analysts who follow the stock call for the company to become profitable sometime in 2001. That leaves lots of quarterly losses until then, though. In fact, the analysts' consensus estimate calls for the company to lose $1.71 a share in 2000. But that doesn't keep them from boosting the stock: All five who cover it recommend it as a buy. "We see prospects for accelerated growth and higher stock values, and believe the company will return to its
previous highs," says BancBoston Robertson Stephens analyst Keith Benjamin. If he's right, the stock would more than triple from its current price. And that's a tempting ticket to ride.
<a ref="mailto:JaffeBW@aol.com">Jaffe writes about the markets for Business Week Online
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