BEAR, STEARNS & CO. INC.
on INFOSPACE 9/19/01.
Copied from another Message Board.
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07:25am EDT 19-Sep-01 Bear Stearns
INSP: New Hires, Share Buyback and Verizon...
Subject: Company Update
Industry: Consumer Internet
BEAR, STEARNS & CO. INC.
EQUITY RESEARCH
InfoSpace (INSP $1) - Buy
New Hires, Share Buyback and Verizon Deal Show Promise
Key Points
*** InfoSpace announced two former Microsoft executives to join team as
Executive VP's of Wireless and Wireline.
*** InfoSpace's Share buyback of 21.7 million shares from Vulcan Ventures
represents a positive note for investors.
*** Catalysts for shares remain outside of the near future despite the recent
influx of positive news.
*** At current levels shares remain a good speculation on the growth of mobile
data.
*** We maintain our Buy rating as the shares have limited down side as they
continue to trade near cash value per share.
Financial Model
Estimates(1) Year Q1-Mar Q2-Jun Q3-Sep Q4-Dec Full Year Revenues
2000 $0.02 $0.02 $0.03 $0.04 $0.11 210,114
2001 ($0.02) $0.01 ($0.03) ($0.02) ($0.06) 167,390
2002 ($0.02) ($0.01) ($0.01) $0.01 ($0.03) 181,655
First Call 2001 ($0.02) $0.01 ($0.04) ($0.03) ($0.09) 165,150
First Call 2002 ($0.03) ($0.02) ($0.01) $0.00 ($0.05) 178,690
(1)EPS from Operations does not include stock based compensation, goodwill amortization and one time gains and losses.
As validation of the strength of its platform, InfoSpace announced that it has added two experienced executives to its management team in Jan Claesson and York Baur. Both executives have spent significant time at Microsoft and have immediately relevant industry experience. Jan Claesson has joined InfoSpace as executive vice president of wireless. Mr. Claesson was at Microsoft for 11 years and most recently directed the company's OEM efforts with customers such as Compaq, Dell and Gateway. Mr. Claesson also served as controller for Europe and was a member of the senior international team for Microsoft, establishing
international subsidiaries and generating revenues with systems integrators.
York Baur has joined InfoSpace as the Executive Vice President wireline and broadband taking over for the departed Charles Stubbs. Mr. Baur will also be overseeing InfoSpace's broadband efforts as the company has consolidated responsibilities in the wake of former head of broadband Mike Riccio's departure after the second quarter. Mr. Baur's background has been primarily in Sales and Marketing. While at Microsoft, Mr. Baur was group manager of the Solutions Information Group which was responsible for producing and promoting developer events for VAR's, developers and systems supporters. Most recently,
Mr. Baur was co-founder and VP Sales and Marketing for SafariDog, Inc. a start-up focusing on broadband applications.
In Jan Claesson's new official capacity at InfoSpace he is responsible for developing and extending wireless carrier relationships in North and South America. Over the next two years, the company's major carrier contracts will come up for renewal and we continue to look for positive signs of contract extensions and additional services in anticipation of these dates. The company's recent contract extension with Verizon to provide a platform for broadband and dial-up services stands as a positive example we look for the company to emulate. InfoSpace will provide a host of applications for Verizon's DSL subscribers in the form of destination pages. Verizon Online's
Destination pages are scheduled to debut in mid-September and InfoSpace will work with Verizon to continue to add additional applications over the following months.
On September 10, InfoSpace announced that it would buy back 21.7 million shares from Vulcan Ventures. The repurchase covers all of Vulcan's stock leaving no overhang and serving as both a benefit to existing shareholders and confirmation in management's belief that the stock is undervalued. Vulcan sold the shares to counteract a tax liability from the earlier sale of Microsoft stock. The stock, in our view is a good speculative investment as it is currently trading close to its cash reserves. While many catalysts for growth such as the adoption of 2.5G services remain outside of the near future, we consider the stock as a valuable option on the adoption of mobile data
services.
Near term catalysts for growth are the rollout of two SMS and enhanced
Services with Infospace's carrier partners in the US. However, given interoperability issues between carriers, such as billing, carriers may opt to bypass SMS altogether in the US and push instant messaging solutions on their 2.5G networks. IM solutions will not have the same interoperability issues given the IP nature (i.e. non-bearer standard specificity) of these products. The company's efforts to deepen relationships with carriers are partially driven by the fact that many of the company's initial agreements come up for renewal in 2002 and 2003. We continue to believe that the fact that carriers are demonstrably deepening their relationships with InfoSpace positively
Influences the company's ability to maintain its position as a provider of services to those carriers.
We expect Q3 2001 revenue of $33.4 million and a pro forma EPS loss of
($0.03), slightly ahead of the companies guidance of $33 million and a pro form EPS loss of ($0.05) for the quarter. For the fourth quarter, the company expects a pro forma EPS loss of ($0.04) based on revenues of approximately $35.5 million while we estimate that the company will earn revenues of $36.4 million and show pro forma EPS of ($0.02). The company in its most recent conference call announced expected full year pro forma EPS loss for 2001 of ($0.10) while we are more optimistic predicting a full year loss of ($0.06). Current guidance for 2002 indicates a range of revenues of $167-172 million down from previous
guidance of $310 million. We expect $181 million in revenue and look for the company to return to pro forma profitability by the end of 2002. With over $268.2 million in cash at the end of the quarter, the company has more than enough resources to manage its continuing transition.
We continue to believe that InfoSpace has some of the best technology in the wireless, m-commerce and broadband services space. The company is well positioned from exposure to high growth markets and expect the share price to reflect that in time. Particularly as the company delivers additional new contracts and demonstrates that it is deep enough to play in all the areas where the company is developing business. We look toward announcements of carrier adoption of the SMS solution as corroboration of not only these trends, but also of this competitive positioning of the company. |
