Subject:
NetStock! by Steve Harmon 1999.09.10 Garden.com IPO Sprouts
Date:
Fri, 10 Sep 1999 04:31:04 -0700
From:
Steve Harmon <steve@e-harmon.com>
To:
netstock-report@listserve.com
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e-harmon.com's
NetStock! by Steve Harmon
ceo of e-harmon.com
"for the internet investor"
e-harmon.com
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Will investors ski or snowboard the first Net stock to combine
photosynthesis with heavy doses of Bandana. Garden.com, set to IPO next
week with 4.1 million shares at a target of $12.
Before the critics call this a literal tulip stock let's check the revenue:
$5.39 million for Garden.com's fiscal year ending June. Obviously there's
more than tulips being shipped.
In fact, Garden.com boasts 16,000 products from 60 suppliers in its bid to
reach the green thumbs across the U.S. The big stats: gardening in general
is a $46.8 billion market with $30.1 billion spent on lawns and gardens
alone each year.
About 2/3rds of all U.S. households participated in gardening in 1998,
according to the National Gardening Association. Granted, that probably
includes the reluctant 12-year old mowing the lawn but the market is huge
nonetheless.
My number crunching shows that Garden.com at a target $12 IPO share price
seeks a $203 million initial market cap.
Garden.com pro forma IPO
Shares offered 4.10
Target IPO price $ 12.00
Gross proceeds $ 49.20
Shares out 16.89
IPO cap $ 202.73
FY99 revenue (June) $ 5.39
Revenue multiple 37.58
Est. FY00 revenue $ 15.00
Forward multiple 13.52
Registered users 0.645
Monthly Web users 1.50
FY99 rev/reg user $ 8.36
Value/reg user $ 314.31
Value/monthly user $ 135.15
Figures in millions, except share price and multiple
(c) 1999 e-harmon.com, inc.
But given the company's first-mover (and effectively only mover) status in
this category I expect this one could probably fetch $15 or $16 by the time
it goes live next week. I think a fair market value, if the market holds,
could approach $300 million at pricing.
The trailing revenue multiple based on its $202 million IPO cap is 38x but
the forward-year 2000 estimated revenue I have for the company is $15
million, implying a 14x forward multiple.
With a little nitrogen and ripe conditions I can foresee Garden.com's stock
rising to north of $30s its first day. I back into that with a sense of
intrinsic value and gut instinct that thinks a $600 million market cap may
be appropriate for a company with arguably the only brand name and position
in this multi-billion market.
Garden.com reports 645,000 registered users and says it has about 1.5
million visitors to its website each month. On last year's revenue that
implies $8.36 spent per registered user. Granted, not all registered users
are buyers but it's a significant metric.
That implies a value per registered user of $314 or visitor of $135, about
10% to 20% of the value of higher-profile ecommerce stocks such as
Amazon.com or even CDNow.
Amazon, for example, counts 10 million customers or a value per customer
(which I equate loosely with Garden.com's 645,000 registered users) at
$2,145 per.
The risks I see in a stock like Garden.com are many: dealing with live
plant sales remotely; uncertain Web-based market for plants and gardening
info; lack of consumer brand knowledge; nascent and unproven market; rivals
could emerge (what if Amazon sells plants at some point?); no earnings yet.
Yet overall I think Garden.com's first-mover status in a category that few
address, with a army of green thumbers across the U.S. (and world), all
could bode in its favor over time.
The real key is to build the brand awareness. But brand alone isn't
everything unless it represents a great customer relationship built by
example. That's the real key here for Garden.com (and any ecommerce firm),
customer satisfaction. User friendliness. Easy shipping. Quality products.
Personalized info.
The elements are there. Now we'll see if Garden.com is a "just add water"
stock.
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(c) 1999 e-harmon.com, inc.
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