Article on forbes
by: insp_forbes 10/09/01 06:18 pm
Msg: 307469 of 307472
COPY RIGHT RETAINED By AUTHOR AND MAGAZINE.
Eyeballing It
Scott Woolley, Forbes Magazine, 10.15.01
Some depressed Web stocks are bargains and have decent prospects. Which ones? Look at both Internet-bubble measures, like audience, and old-style measures, like cash.
Of the many chuckleheaded things investors did during the Internet craze, justifying a company's stock price on new metrics of "eyeballs" and "stickiness" was the dopiest, right? Yes and no. This may be the time to resurrect these yardsticks.
The postcrash Internet sector presents some new valuation puzzles--and opportunities. In the heyday of dot-com stocks, Ivillage was trading at a market value of $2.7 billion while it had but $96 million in tangible book value, under $20 million in trailing 12-month sales and no profits. This collection of Web sites aimed at women is still losing money, but it is now down to a market value of $41 million, less than the $54 million of cash it has on hand. The outfit carries no debt.
In this environment there is something to be said for measuring whether a Web company's audience is growing. If it is, you have a reasonable prospect that the company is heading toward the day when it stops burning up its cash. In that case the stock could be a value play.
With declining audiences the value of the cash is much lower. Too great a likelihood exists that the cash will be consumed by the enterprise.
We've compiled a roster of four companies that look like value plays, on the basis of their liquid assets and their increasing audiences. This doesn't include kingpins on the order of Yahoo (now trading at $10 per share, down from $237 in January 2000), which until last year's final quarter was profitable. We're focused on the lowliest form of Internet life: the smallish information-centered companies, whose stock is extremely cheap, mostly going for around $1 per share.
These companies boast strong cash posistions, growing traffic. All but one (infospace) have improving operating income
Name Share Bookvalue Cashper Traffic
Price PerShare Share Growth
INSP 1.23 1.65 .56 5%
ASKJEEVES .91 1.35 .99 15%
GOTO.COM 12.33 1.51 .34 94%
iVILLAGE.COM .82 1.12 1.03 138%
Some tradition-minded folks call for applying conventional financial standards to Web enterprises, such as price/earnings and price/book ratios. That's grounded in a healthy instinct--real profits and assets ultimately determine a company's worth. One problem: Applying the old metrics to the surviving dot-coms is often impossible and almost always misleading.
Here's why. Price/earnings ratios are best suited for comparing companies with steady income streams; few Internet pioneers are anywhere near mature. Further, the financial statements of Internet companies are peculiar, says Michael Mauboussin, Credit Suisse First Boston's chief U.S. investment strategist.
How come? Major investments by old-style companies, like stores and factories, are accounted for as long-term assets and stuck on the balance sheet. When a dot-com invests in building its site, the costs go on the income statement as expenses. That creates a real difference in reported earnings of virtual businesses.
So weigh these factors:
CONT.... |
