An analysis of IBEM:
worldfinancenet.com
Streaming media, both video and audio, have become increasingly popular Internet features. In fact, it?s estimated that as many as 50% of the websites will offer some degree of streaming media by ?01. Now while streaming media is in high demand, there are technical problems. First, the Internet was designed for 1:1, or point to point, communications. Streaming media increasingly involves broadcasting, or point to multipoint, communications. Secondly, it also consumes extraordinary amounts of increasingly limited bandwidth. As a result, performance has been slow and of relatively poor quality. The expected surge in demand is expected to further degrade quality and increase pressures on bandwidth capacity.
iBeam has one approach which relieves this bandwidth demand and improves quality. The company is to the Internet what broadcast and cable networks are to TV. It broadcasts (point - multipoint) streaming media programming across the web. But it avoids considerable bandwidth limitations by bypassing the traditional land line methods. The firm uses satellite communications to broadcast programming to specialized servers located on the ?outer edge? of the Internet. Consequently, a major portion of the communications networks are bypassed. However, problems with the ?last mile? (i.e., server to consumer) will persist. But overall capacity demands are relieved.
The company is installing these ?edge of the Internet? specialized servers with several leading ISP?s, including AOL, Excite@Home, Covad Communications, Northpoint Communications, and Microsoft. As a broadcaster, its customers are really the Internet content providers. The company reports 40 customers which include MSNBC, Warner Bros., Launch Media, Music Now, and PixelWorld. It also reports additional alliances with Pacific Century CyberWorks, Sony, and Microsoft.
While the promise of the technology is intuitively attractive there are several drawbacks. Neither the industry demand nor the firm?s business model are proven. The customer base remains very narrow. In ?99, three customers accounted for 68% of revenues, with one accounting for 12%. But the level of revenues remains very low. So broad demand is unproven. The firm is also critically dependent on its AOL and Excite@Home alliances. Broadcast servers must by co-located with these ISPs, and without them, the entire business strategy falls apart. The quality of the crucial ?last mile? has also not been addressed. The firm has completed a network capable of supporting 20 KB broadcasts to 300,000 simultaneous users, but is really still in its developmental stages.
The company is just emerging from start-up and revenues have been boosted by the recent acquisition of Webcasts.com. Without this acquisition, 1Q?00 revenues were less than $0.5 million. With it they were boosted to $2.1 million, with ?99 restated at $5.1 million on a pro-forma basis. All margins, including gross margins, are significantly negative and, in typical Internet form, cash flows are significantly negative. So the business position resembles the Internet firms offering IPOs in 4Q?99 and 1Q?00.
This is a relatively new industry sector and valuations are uncertain. Principle competition appears to be from Akamai which has recently acquired InterVu and Network24 Communications. While not directly comparable, some recent IPOs may provide some valuation perspective. Akamai Technologies was a $234 million deal offered on 10/29. Offered at $26, it closed at $145.19 for a 458.4% first day. It recently traded at $73.22, off 49.6% in the aftermarket and in the lower quarter of its 52 week trading range. Ravisent Technologies was a $60 million deal offered on 7/16. It was offered at $12, and closed at $17.63 for a 46.9% first day. It recently traded at $6.50, off 63.1% in the aftermarket, at the bottom of its trading range, and under its offering price. Eloquent was a $72 million deal offered on 2/17/00. Offered at $16, it closed at $32 for a 100% first day. It recently traded at $7.94, off 75.2% in the aftermarket, near the bottom of its trading range, and under its offering price. Despite the valuation uncertainty, pre-offering demand has been reported to be solid (Street Scoop 3 star rating).
This is another classic case of an IPO being used as venture capital. There is considerable promise but little supporting performance and the offering is premature. Now it will draw some attention because of its high profile alliances and investors, which include Intel, Microsoft, and Excite@Home. But it remains a highly speculative offering. Expect a moderate first day (e.g., 10%-30%) followed by volatility and then erosion. |
