A basically negative article from Red Herring:
redherring.com
PCQuote.com's dizzying spin-off strategy
By Gracian Mack
Redherring.com
September 3, 1999
PCQuote.com is trying to tiptoe its way out of a sticky situation. Its parent company -- which once bore the name of PCQuote Inc. -- is spinning off the Internet component, happy to rid itself of the drain on income and raise some dot-com cash. Its planned initial public offering has been amended five times and is now set to debut the week of September 13.
Ever optimistic since it started the Securities and Exchange Commission registration process in June, the Internet-based provider of real-time and delayed market quotes, news, and research tools has cut the price range of its proposed initial public offering of 7.75 million shares to between $11 and $13 each, down from $12 to $14. The company also added Commerzbank (OTC: CRZBY) to the managing underwriting group led by Prudential Securities. Commerzbank joins as comanager of the offering along with U.S. Bancorp Piper Jaffray, First Albany, and EOffering.
NAME THAT COMPANY
Two months before the filing, shareholders of what was then PCQuote Inc. voted to change the name of the parent company to HyperFeed Technologies (AMEX: PQT). At the same time plans were already in the works to spin off the non-data-feed parts of the business under a new entity called PCQuote.com, Inc.
PCQuote.com will offer 5.8 million shares. HyperFeed, as the selling stockholder, will offer 1.95 million shares, reducing its ownership from 98.7 percent to a little less than 50 percent.
SHEDDING THE LOSSES
HyperFeed is spinning the company off in an effort to streamline its operations, which in turn is expected to boost earnings by reducing operating costs.
HyperFeed uses high-speed data circuits to gather information from securities exchanges and other sources. These feeds are directed into multiple real-time databases from which HyperFeed is generated. For the quarter ended June 30, HyperFeed reported revenues of $8 million, up 40 percent from the same quarter of the previous year. The company also reported a net loss of $2.1 million, or $0.14 per share, for the quarter, compared with a net loss of $2.4 million, or $0.19 per share, for the same period in 1998.
HyperFeed generates much of its revenues from service contracts for market data only ("HyperFeed license fees") and service contracts for the provision of market data together with analytical software ("PCQuote 6.0 license fees"), plus the sale of advertising on its Web site (www.pcquote.com).
With HyperFeed providing the transmission wherewithal, PCQuote.com operates as the Internet presence. Basically, PCQuote.com consists of two points of light on the Internet: PCQuote.com, a provider of free quotes and business news; and MarketSmart, a subscription-based Web site that provides real-time, snapshot market quotations, along with all of the news, research, and analytical tools that are available on PCQuote.com. Because of its ability to provide real-time quotes, this site is targeted toward a more active investor than is PCQuote.com. The company also offers an Internet-enabled desktop application, PCQuote 6.0, and a new application, PCQuote Orbit, expected to roll out in November.
With no history of operations as a stand-alone company, PCQuote.com reports in its registration statement that for the six months ended June 30, revenues were $6.9 million, up 58.7 percent from the same period of the previous year. Approximately 86.4 percent of that revenue is attributed to subscriptions to the PCQuote 6.0 RealTick service.
PCQuote.com's net losses increased 26.8 percent for the first six months to $1.97 million, or a loss of $0.20 per share, from $1.6 million, or $0.16 per share, for the comparable period a year ago. Its number-one revenue generator, RealTick, is actually licensed from Townsend Analytics. PCQuote.com pays Townsend 33 percent of the subscription revenues gleaned from the PCQuote 6.0 RealTick service and 50 percent of revenues relating to the private-label versions; privately held Townsend sells competing products of its own via its Web site. As a result of the spin-off, HyperFeed will also collect certain maintenance fees. HyperFeed is also passing on accumulated losses of approximately $10.7 million.
So far, the biggest contribution to earnings for PCQuote.com comes from business-to-business services for customers that want to present financial data or information on their own Web sites or desktop applications. In addition, PCQuote.com gets money from the banner ad sales on its Web site from such companies as Datek Online, Onsale.com, Discover Brokerage Direct, Oracle (Nasdaq: ORCL), and Donaldson, Lufkin & Jenrette (NYSE: DLJ).
QUOTE CONUNDRUM
As PCQuote.com readies for the launch of its IPO, it is girding to compete in the industry sector of stock quote giveaway. Obvious competitors are Track Data (Nasdaq: TRAC) and Data Broadcasting (Nasdaq: DBCC). These companies all vie for positions among the bottom of the trading floor. Track Data, at $9.50, had $47 million in sales over the past 12 months and a loss of $800,000. Similarly, Data Broadcasting recently closed at $7.56 and had 12-month revenues of $93 million with a net loss of $2 million.
Analyst coverage of these companies is thin, and competition is fierce. Every Web site with financial content has a stock market feed, and almost every portal has a feed. Most desktop application suites can gather quotes from the Web and deliver them to spreadsheets -- all for free. The marketing lure to making the business model work is to give away enticements, build brand recognition, and then make the pitch for premium subscription services.
In the short run PCQuote.com could ride a great swell. Consider Multex.com (Nasdaq: MLTX) when it came public in March at $14 a share. By April the stock was trading near $71 per share. But the prospects for long-term gain don't look nearly as good. Multex.com was recently trading around $16 per share. In the past 12 months, Multex.com booked a loss of $10 million on revenues of $12 million. The Multex.com business model sells research reports gathered from other financial sources. But part of the cash gained in the public sale of common stock contributed to the June announcement that it would buy Market Guide (Nasdaq: MARG), the fundamental data provider. Market Guide actually operates in the black with 12-month net income of $1.7 million on revenues of $9.6 million. The deal boosts the company's proprietary product offerings while creating cross-selling opportunities -- the sort of idea that PCQuote.com may have to build on in order to avoid the commodity world of stock quotes. |
