I asked a friend of mine who doesn't follow the company to take an informal look and get back to me with the results. I got permission to post it here and I would like to get the thread to critique it:
So what we seem to have is a traditional direct/telemarketing firm which woke up a couple years ago and realized that their core business was going to go extinct primarily because a lot of the direct marketing can and will be done over the internet with email. The fact that the company was a BB stock for years (with a nice reverse split 1:4 back in 1995) doesn't exactly thrill me. But I'm willing to let bygones be bygones. So they get GE capitol behind them, CMGI behind them, do a private placement, apply for Nasdaq listing and go on an acquisition spree of Internet marketing properties to offset the shrinking traditional side of the business. (75% increase in Internet related business offset by a 19% decrease in telemarketing in the latest report) Obviously, there will be some crossover between the two sides with some traditional clients moving over completely to the Internet or deploying their marketing across both types of media.
The company bought Stevens-Knox and CMG direct, two traditional direct marketing firms. They created Wired Empire out of CMG direct. The division specializes in e-mail solutions for customer management. Pegasus is part of this division. They have created smart agents to interact with a customer database and manage relationships (this might prove to be the most profitable portion, depending on whether they are smart about licensing these agents). They also bought Grizzard which is a marketing firm that specializes in fund raising for non-profits.
Market Cap. 487.8 small for an Internet company
Price to sales 3.48 low for an Internet company
The question is, how much of the company is Internet? From the questions answered by the CEO on the Q&A forum on RB we can gather that about 1/4 of the employees are in the Internet related portion of the company. Obviously if we apply the above growth rate to that portion of the business the internet portion will overtake the traditional within a few years. The introduction of the Internet portion also brought in a burn rate and the company is losing money before factoring in acquisitions. The loss is expected to widen by a penny for 2000.
There is no question that there is a great need for the companies products. There is a need for the agents they have created for handling email across all kinds of industries, email is becoming the preferred interaction method and most companies do not have internal resources in place to deal with the flood. Obviously a software agent is cheaper to deploy in a tight labor market than a bank of customer agents. Permission marketing is going to explode, largely because we are going to see an increase in the consumer opposition against the type of data mining that is going on with companies like Doubleclick. The nature of the web community is such that they will not tolerate the invasion of privacy that comes from that type of marketing and permission marketing is more palatable.
In the non-profit arena this will be especially true. This is an extremely good development for the non-profits, yet I have to think that it might not be so great for the company doing the marketing. From my personal experience with non-profits, the companies that provide the marketing are paid based on a percentage of the cost of the media placement, the printing and mailing cost in a direct situation. Obviously in the online world this cost will plummet. Unless they develop a new method for payment, the non-profits are about to receive a windfall along the lines of when the cigarette companies were forbidden to advertise on TV. I believe that it is illegal to base compensation on a percentage of funds raised, but I have heard of compensation based on numeric targets (as in college applications received, subscriptions sold, etc.). I imagine that initially there will be a hybrid approach combining both the traditional marketing methods with Internet solutions and for this, this particular company is uniquely positioned.
It is extremely hard to value this company, primarily because they are straddling two worlds. You can't compare them to companies that are pure direct marketing and you can't compare them to companies that are purely Internet. They have a good debt ratio and enough cash to make it through this year, but they have no target date for profitability. No doubt the sector is going to explode and their association with GE Capital and CMGi is a definite plus. They appear to be undervalued in comparison to companies like DCLK and KANA. Price in one to two years could be in the $100-200 range for that reason alone. But this isn't based on fundamentals, but the unreasonable valuations that the others have received. If you apply the price to sales that CMGi enjoys, you have a share price of $585. The price to sales that DCLK enjoys would give you a share price of $278. If you compare it to KANA you'd have a stock price over $1000. |
