Regarding LONE's valuation in light of it's pending 10% stake in Communicata. It seems as though the payoff for future Communicata shareholders will be in 2001, when, according to Communicata's business projections, it's revenue will explode to $14 mil. from $800 thousand this year. How do we value a company growing from point A to point B. It seems to me that two metrics are key. The first is a summation of the private market values of Communicata's stakes in its incubator companies. Analysts have attempted to use this method to determine an intrinsic value for other publicly traded de facto venture capital companies, such as SFE and CMGI. Since we don't know what companies Communicata is targeting as acquisitions, although we know they are in such talks, we don't have enough information to attempt to make this type of calculation and it is therefore useless for the time being. The other pertinent metric is revenues. Even though this company projects profitability, since so few internet companies are posting earnings yet, revenues remains the conventional basis for valuation with internet consulting companies. We know what the projections are. How to value them? Software companies are lucky to have a multiple to rev's of 10. Internet technology and consulting companies, including those in advertising, often command a multiple to rev's of 25 to 30 or more. 30 seems like a nice round number well within the norm so I'll use it for a back of the envelope calculation. At $800 thou., a price to revenue multiple of 30 gets us to a market cap. for Communicata of $24 mil. Of this LifeOne shareholder claim 10%, or $2.4 mil..The last presentation by LONE of its outstanding shares was 18 mil., I think. Dividing the value of LONE's stake in Communicata by LONE's shares outstanding gives us a per share value of $.13, or about where the current price is. The payoff for current LifeOne shareholders will be next year if the projected rev's materialize. A P/R ratio of 30 applied to $14 mil. gets us to a Communicata market cap. of $280 mil. of which LONE shareholders will own an amount worth $28 mil., or $1.55/share. If everything works out, LONE's current share price will look like a bargain in retrospect. There are several unknown variables, each of which makes speculation about the future return for current LONE shareholders extremely risky. The most obvious of these risks is that while the reverse merger appears to be progressing toward to completion at a reasonable rate, it's finality is by no means assured, especially given that judicial approval is necessary. Though I rate the odds very high of its occuring. Variable number two is how many shares of LONE and thus of Communicata will be outstanding when the spin-off is complete. The final press release Brent Chapel issues before the trustee assumed control over operations stated a belief by management that the bankruptcy declaration would obviate the potential conversion of the remaining outstanding convertible debentures, effectively nullifying them. We common shareholders should pray this happens to save us from massive dilution but should not take anything for granted until the "details" as Mr. Hanson calls them, are finalized. The third variable is how realistic Communicata's 2001 rev. projection is. We have no idea what its underlying assumptions are, which are necessary to know in order to make a judgment for ourselves about the projections' realism. It is somewhat comforting to know that more than one expert at internet company valuation has deemed the projections on Communicata's website to be realistic.
I was interested in buying LONE shares at a price of less than $.10 but couldn't get my order filled. I've decided not to chase it as the price rises but instead to wait for further developments. I think a less risky way to be involved in Communicata's development might be to wait until their spin-off is completed to alleviate transaction related risk and then to purchase their newly created stock. The rewards may not be quite as great but still quite compelling and the risk would be substantially less by several different aspects.
I welcome anyone to add their comments about how to value LONE's potential 10% stake in Communicata. This is of great interest to me and is fundamental to developing a concept of what our LONE shares are worth, and thus of how to deploy capital in order to exploit our knowledge of Communicata's birth as a publicly traded company. |
