News Blurb:
Morning Report
Using Internet As Glue:
CUC Could Be A Web Commerce King
By Steve Harmon
Senior Investment Analyst
Internet.com
"Where Wall Street Meets The Web"
[June 27, 1997] Computers have operating systems and so does Web commerce, albeit of a different nature. Software run computers, relationships run commerce. And the pioneer that looks to be a model of how to do it may surprise you--it's not Microsoft, Netscape or IBM. How about discount shopping and service king CUC International (NYSE:CU), with more than 66 million members worldwide in 30 countries (2 million outside the U.S.).
For the past 15 years CUC (www.cuc.com) quietly built an empire of discounted goods and services, doing what Amazon has done for books (volume, discounts, convenience, service, and virtual warehousing) on a much larger scale. Only instead of offering just dead trees with ink, CUC offers more than 250,000 brand-name products, each available through its vendors, distributors and retailers nationwide, and on the Internet.
CUC offers shopping, travel, auto, dining, home improvement, lifestyle, vacation exchange, credit card and checking account enhancement packages, financial products and discount programs, among other things. Membership fees depend on which program a person opts for with annual fees to consumers generally ranging from $6 to $250 per year.
Moving beyond the virtual, CUC recently agreed to acquire HFS, the name behind Avis, Ramada Inns, Century 21, in a mega-billion deal. This puts some "real estate" in with CUC's membership base, and opens the door to HFS' database of customers. Recent deals and talk also highlight what we have dubbed a "hyperCommerce" attitude:
CUC just paid AOL (NYSE:AOL) $50 million to market its Internet commerce services and new NetMarket (was called Shoppers Advantage) on AOL. It also has agreements with CompuServe.
CUC has acquired a number of software companies (which software it sells) and interactive know how
The company is committed to the Internet as an integral part of its future.
Granted, CUC is not a big Web player currently--the company reports 350,000 "interactive" members as of January 31, 1997, but that's up 75% over the previous year as these members enjoy better discounts and CUC's margins are fatter due to lower costs to market to them. We estimate that within the next five to six years perhaps as much as 10% to 15% of CUC's membership could be using its services via the Web (that's an estimated 10 million to 15 million users based on 100 million members in the year 2002 or 2003, assuming double digit percentage membership growth continues). Beyond members, the Web--or a future version of it--will likely be the touchstone for all CUC's activities.
CUC chairman Walter Forbes recently told shareholders: "...the explosion in PC ownership and in the online services market makes a major expansion of these markets a certainty. Whenever this expansion occurs, it is sure to happen swiftly, leaving behind the unprepared and under-capitalized. I can say with confidence that CUC will be strongly positioned as one of a few companies with the ability to lead in this new marketplace."
We think the AOL deal was a starting point. Our take is that if you imagine a NetMarket user at some point staying at Ramada using AOL on a laptop sold via CUC, who booked the trip through Travel Advantage, while renting an Avis rental car, just sold a house through Coldwell Banker and is going out to eat in a 2-for-1 coupon at one of 19,000 restaurants. At every step CUC is involved since, with the exception of AOL and the laptop, CUC owns or provided the service.
In short, we think CUC may represent the ultimate in what could be termed an "Internet as glue" stock. Huh? It won't be long before the Internet (Web, intranet, extranet) holds together its many aspects into an integrated marketing, sales and service effort--effectively becomes the front and back end for what in the past was a much harder to realize network of companies and services. Effectively, "Internetized" CUC may just be the ultimate leverage machine, an example of the kind of intermediary that the Web seems ripe for. We'll see. |
