I'm taking a look here after reading this interview with the NTPL CEO, assuming it's all legit. Seems worth some DD.
The Individual Investor's AnalystSSHIA
The Individual Investor's Analyst
May 8, 2000
There are many "naysayers" on NTPL stock right now. The stock is down,
so it is easy to be down on the company. However, we are Peter Lynch-type,
long term investors who look inside the company to see what is happening
to make our decisions. Presently, we see good things going on and we like
Netplex as much now as when it was in the teens in stock price.
Now, the stock is a better buy than ever, given the facts, many of
which you read in the interview below with Gene Zaino, the CEO of Netplex.
Do you want to buy the stock after many contractors have signed up for
MyBizOffice and NTPL has moved over $10? Now is the time to buy, in our
opinion, when you get such a good deal, which takes a lot of trust and a
strong stomach.
Netplex's deal with TMP Worldwide, known popularly with there flagship
Monster.com, the
world's largest job site, was, to get the obvious out of the way, a
monster.
Message boards had speculated about such an alliance for several months.
Why
did they? It would be the biggest and best that could happen to Netplex's
"MyBizOffice", formerly known as "Techcellence", their new web-enabled
version of "Contractor's Resources". MyBizOffice, as you probably know, is
a
subsidiary of Netplex, whose core business is E Solutions. Hooking
MyBizOffice with Monster would be an investor's dream, sort of like the
realization of a new software company hooking up with a Microsoft.
When it finally did happen this week, the story proved anti climactic.
Instead of zooming, the stock moved up slightly, then actually went down a
half point. How could this be, investors wanted to know, and what does
this
Monster alliance portend for the future of NTPL and MyBizOffice? Muddying
the
waters has been a private placement of $10 million. How did it figure in
the
overall plan and story?
To find out the answers to these questions and more, we went to Gene
Zaino, the CEO of Netplex. After reading this interview, you'll easily
connect the dots and see how the company wisely played out its hand over
the
past few months. For example, did you ever wonder why Netplex suddenly
changed the name of their subsidiary Techcellence to MyBizOffice? Here's
the
answer. Techcellence was set up on the web to handle IT contractors, while
Monster needed a site to handle all types of contractors from a wide range
of
professions, extending beyond information technology.
This explains why Netplex curtailed their advertising and promotion of
Techcellence. They knew the name would soon be changed to accommodate a
much
larger business model. Gene had to wait to put this deal together before
he
could advance Techcellence as he had originally intended. Meanwhile,
investors got the feeling that the company was not following through. Such
was not the case. They followed through in grand fashion to emerge the
clear-cut leader in this new market.
The Monster deal also explains the $10 million private financing. The
company needed $5 million-- $2 million the first year and $3 million the
second. We could go on with details here. Instead, read the story straight
from Gene Zaino, the energetic and talented leader and founder of Netplex.
Now that the news is out and the deal is done with Monster look for
Netplex
to execute their plan with increasing speed, the speed with which
investors
had previously taken the stock from $2 1/2 to $19 1/2.
Gene Zaino Interview
SSHIA:
First, tell us the obvious, why you made this deal.
Gene:
Sure. We're not in the job matching business. We needed to connect
ourselves
to a partner who would do that. Monster is clearly the number one job site
in
the world. Monster is a monster. This is hard to believe, but if you took
their 13 biggest competitors and added them up, they still wouldn't equal
the
size of Monster.
SSHIA:
Before we get deeper into this deal, throw some Monster numbers at us.
Gene:
Okay, here's a staggering statistic. Over the last 10 months, Monster has
signed up 175,000 independent contractors.
SSHIA:
This is more than IT professionals, such as your Techcellence business was
set up for. Right?
Gene:
Right. I'm talking all independent contractors. Statistically, about 50%
are
IT professionals. Another 13% to 14% are accounting. Another 5 % are
management consultants, and then the rest are a mix of everything else.
SSHIA:
So this is why you had to change the name of Techcellence. It was set up
as a
portal on the Internet exclusively for IT professionals.
Gene:
Correct.
SSHIA:
Does this also explain why promotion seemed to stall for Techcellence and
you
had to keep quiet about this?
Gene:
Yes, I worked on the Monster deal for months. Forging an alliance with
them
was so big there was no need to promote Techcellence. Plus, we had to
build a
tremendous amount of infrastructure for a new web site. This was part of
the
deal because Monster required that we handle those 175,000 contractors and
every new contractor that will come on board in the future.
SSHIA:
This sounds very big. How many of those 175,000 independent contractors,
do
you think, will sign on with MyBizOffice?
Gene:
Statistically, we've been converting about 15 percent of contractors who
are
interested. We convert about 15% in 90 days, from the time they're
interested. I would not say we will convert 15% of those 175,000 in 90
days
because that would mean that everyone is interested.
SSHIA:
That 175,000 is the total signed contractors now. Monster is continually
signing more of them. How many are out there?
Gene:
Gartner and Forrester, two independent research firms, and the Department
of
Labor are predicting as much as 50% of the work force in Fortune 1000
companies will be independent contractors by 2003. As for the total, today
there are 9 million independent contractors out there in the marketplace.
SSHIA:
Monster chose you to do this deal. Did they look at other companies? Why
did
they choose Netplex? Opus just came out with an IPO of their
"Freeagent.com",
which is in direct competition with MyBizOffice.
Gene:
They looked at our technology. They looked at our system and the way it
operates, and they found that we were the best out there. I know that
Monster
spoke with every competitor, Opus included, and they chose us. I know they
did a tremendous amount of research because they've been talking to us for
a
long time. The fact that they are risking their brand name and providing
us
with this valuable channel for our services shows the confidence they have
in
us.
SSHIA:
Tell us the financial underpinnings of the deal.
Gene:
We're paying them $5 million. To break it down, that's $2 million now and
a
minimum of $3 million the second year. That figure could go up, too,
depending on gross revenue expectations in the revenue sharing plan. If we
hit that level of gross profit, obviously, we will be rolling strong. As
far
as the warrants, we issued Monster a warrant to purchase a million shares
at
$6. Two years from now we're issuing a warrant to purchase 2 million
additional shares at $9. That comes to a potential investment of $24
million.
The fact that they have a warrant for 3 million shares shows how much they
really want to drive us to success. They agreed to $6 and $9 when our
stock
was trading at $3, which shows the confidence they have in the success of
MyBizOffice.
SSHIA:
Is this an exclusive deal?
Gene:
Monster will never do exclusives. However, it is as close to an exclusive
as
there could possibly be. The language used is prominence, and we are
permanently attached to their site for two years. Monster has the lion's
share of the job site market, and we will be positioned to be the dominant
player and ride their coat tails to provide these contractors their
electronic compass.
SSHIA:
What will we see on the Monster web site?
Gene:
You will go to the Monster site and you will see our brand name,
MyBizOffice.
It is going to ask the question, "Do you need an E-Office? If so, then you
click on MyBizOffice, which takes you to a site that is going to explain
that
Monster, in partnership with MyBizOffice provides you these services.
SSHIA:
Did you build your new MyBizOffice site especially for this?
Gene:
Yes, we've modified it to look and feel like Monster.
SSHiA:
Monster has an alliance with AOL. Would that do anything for my
MyBizOffice?
Would there be some kind of co-branding with AOL?
Gene:
There is no guarantee on that. AOL is a different deal. We certainly get
all
the publicity that monster posts on AOL. So, anyone from AOL that drives
to th
e Monster site comes to us. There is no obligation for them to put us on
AOL.
SSHIA:
Was Monster getting requests from contractors for a home office solution
for
their businesses? Did Monster need to help their job site applicants with
such a service?
Gene:
Absolutely. They feel this is very critical to their business model and
they
need our capability to enable Contractors to truly operate in an
independent
manner.
SSHIA:
I notice MyBizOffice site helps contractors figure how much to charge
clients. There is much more there than a corporate back office.
Gene:
Right, and Monster is going to enhance that dramatically. This is a
cobranded site.
SSHIA:
Can you do the math for the revenue potential for MyBizOffice for this
deal
with Monster?
Gene:
If you forget about the investment of $24 million from Monster, and look
at the
cash flows, we have an outflow of $5 million over two years. That's 2
million
in year one and 3 million in year two. If you assume we will generate
approximately $4,000 in fees per member, roughly 4% of hundred thousand
dollars, we need about 1250 members over the life of the agreement to
break
even. The total of 1250 members should be real easy to do. That's about
50 to 60 members per month. We are very confident that MyBizOffice will
have
a positive cash flow even in the near term-- I'm talking about the
two-year
term. What's also important is even after this agreement is over we keep
all
these members. They become annuities for us. These people don't leave.
They
are here for years. After two years we could walk away if we want, and so
could they. We could renegotiate and renew, which is much more likely.
SSHIA:
Where does this put MyBizOffice today?
Gene:
It really positions MyBizOffice as a leader in what I think is a really
new
industry. I think now what we need to do is to make sure we take
advantage
in that and that's going to be a lot of marketing, a lot of publicity,
working this relationship really hard, but the result could be staggering.
The result could be thousands of independent contractors in the next two
years that are generating 4000 to $5,000 in fees that are annuities for us.
SSHIA:
Let's run some more numbers. Let's say you convert a third of the 15% that
is
normal figured on the current 175,000 independent contractors at Monster.
That would be more than 5,000 new members. Multiply $4,000 by 5,000 and we
have $20 million. Monster would be due 25% of the gross profits on these
members. Correct?
Gene:
Yes, and that 25% would be applied to the $3 million second year payment.
After they reached $3 million from that 25% payment, they would earn more
money.
SSHIA:
And at this level of membership, you would really be rolling.
Gene:
Yes.
SSHIA:
And this is predicated on 5,000 members. The numbers could go much higher.
Gene:
Yes.
SSHIA:
Will you go out and do special deals with Monster?
Gene:
Yes, we will make joint sales calls. We go to a company, let's say
Citibank
as an example. We offer them the services of Monster to find the people
they
want and the services of MyBizOffice for processing.
SSHIA:
What other costs are involved with the Monster deal?
Gene:
There are not many other costs involved. We've built the system, the
infrastructure, to handle thousands of contractors. We're going to do more
marketing, and continue to take advantage of the marketplace.
SSHIA:
This deal appears to put you in the forefront of the e-office business for
independent contractors. Yet, the market cap of Opus with their recent IPO
of
"Freeagent.com" is almost ten times as big.
Gene:
If you look at the market cap of Opus, it's a half billion dollars. We are
far more strategically positioned, more valuable than they are with
MyBizOffice, and on top of that, our E-Solutions business, which did $50
million in '99, will conservatively do $65-$70 million in 2000. What's
that
one worth?
SSHIA:
That's a good question. Then, what is the potential for Netplex
shareholder
value considering this Monster deal and the expanding E-Solutions side of
the
business?
Gene:
In my opinion, the potential for Netplex shareholder value that could be
unlocked is substantial. We are trading at a market cap equal to less than
one times revenues; whereas, our peer group is trading at a revenue
multiple
anywhere from 5X to 15X. Do the math. If we traded on the low side, at a
5X
multiple on E-Solutions, that's $300 to $350 million. If we divide this
market cap by 20 million shares (fully diluted), we arrive at $15/share.
This
is without figuring in MyBizOffice, which should be worth at least this
much.
By Jerry Heasley |
