Article on forbes
by: insp_forbes 10/09/01 06:19 pm
Msg: 307470 of 307472
Traffic. Ivillage's July traffic--as measured by number of minutes of viewing time (unique visitors times the average minutes they spent there)--was up 138% from July 2000. The trend for Ivillage has been up throughout 2001. Not true for search engine Looksmart.com, which was down 51% in July.
Precrash Internet cheerleaders mistakenly tried to do something very different with traffic figures, says Timothy Koller, a partner at consultant McKinsey & Co. and coauthor of a book on valuing companies. The bulls said the traffic alone was worth money. On a relative basis this notion has some logic; if Yahoo has four times the traffic of Excite, its market value should perhaps be four times Excite's. But how did the bulls know whether those values should be $4 billion and $1 billion, or $4 million and $1 million?
Traffic figures have another virtue, argues Brett Trueman, professor of accounting at the University of California, Berkeley's Haas School of Business. Trueman's research has found that traffic figures do help predict future revenues. They did not distinguish companies that could turn revenues into profits (such as Ebay) from those that could not (Etoys, CDNow and hundreds of others). When betting on two beaten-down Internet stocks trading below net current assets, speculating on the one with traffic gains makes sense.
Operating results. None of the Web companies on our list is profitable. Nevertheless, all but one have improving operating income (earnings before interest, taxes and depreciation, excluding one-time items), and thus the prospect of posting real earnings some day.
Search engine GoTo.com scratched out a $52,000 operating profit last quarter, which should jump to $1 million in the third. Ivillage promises its operating loss of $19 million in the second quarter will fall to zero in the following period. Things are improving more slowly at search engine Ask Jeeves. Its operating loss was $9.7 million last quarter; analysts project this will be whittled down to minus $7.6 million in the fourth quarter. InfoSpace is headed in the other direction, from a $3 million operating gain last quarter to a $17 million loss next. It is spending the money expanding beyond running Web sites into selling software, potentially a more lucrative business.
Cash cushion. If the cash position is good, investors should feel reassured. Consider GoTo, which is due to change its name to Overture Services this month. The company has $17.8 million in cash, and actually added $4.8 million in cash last quarter. That's one reason GoTo's stock has doubled since March to $12.33. Ask Jeeves, with $36 million in cash, has a bigger cushion but is burning $5 million per quarter.
Cash is the ultimate hard asset. Computers and desks may turn out to be worth less than their carrying value.
So look at tangible book value (book value minus goodwill and other intangibles), but pay close attention to the portion of tangible book that takes the form of cash and equivalents. Ivillage's tangible book value of $1.12 is composed mostly of cash, $1.03. |
