First of all, YHOO did a 3 for 2 split (in October, I think), so the 26 million shares you used should really be 39 million. So they really haven't given out nearly as many as you think. Second, YHOO shares outstanding (diluted) is now about 53 million shares (including options). Shares outstanding for XCIT will increase by 3.2 million assuming the MatchLogic deal goes thru. I'm not sure about XCIT options in regards to dilution.
Personally, I only like XCIT on a relative basis. Relative to YHOO that is. The market caps are about 4x apart. Page views are around 2x apart, and revenues are maybe 1.4x apart. The leverage XCIT has is much greater than YHOO because of the difference in shares outstanding. Right now XCIT is projected to make $1 in FY1999, vs. $0.67 for YHOO. But don't discount YHOO for being #1. Even if revenues were the same, the power and appeal of the YHOO brand name by being #1 will not put them in equal valuations (i.e., Coke vs. Pepsi).
Everyone knows that valuations for internet companies are sky high. In some cases, a small float (and/or high short interest) is probably keeping the shares as high as they are (i.e., AMZN). Any minor setback in revenue growth could be disasterous for the stock prices in the sector, whether it be from lower advertising prices, or less interest in advertising on the net. Or a huge insider sale. Everyone is being very optimistic on the future of these companies at this point in time. Why do you think the targets brokerages are placing on these companies are not that much higher than current prices (i.e., someone recently recommended XCIT with a 12 month target of 40). And there's always the threat of other websites (NSCP, AOL and MSFT for example) becoming larger factors in the realm of web domains. Look at NSCP and what MSFT has done to NSCP's stock price by giving away MSFT IE.
Personally, I like YHOO and XCIT as a user, but am not crazy about the valuations. I mean, even the more "mature" AOL is projected to make about $16 million this quarter, yet sports a $10 billion market cap. I'm just playing off the disparity of YHOO and XCIT, long XCIT and short YHOO. I'm hoping to see 3:1 market cap ratio before I consider selling. 2:1 would be even better, but I think that may be optimistic. To me, it doesn't matter much whether they go up or down. There are just too many if's out there for me (I'm more of a value investor) to hold XCIT by itself at these levels, although if they can come close or beat the FY1999 projections you MIGHT see something in the $100 neighborhood IMO, but that is 2 years away, and there may be lower entry points some time in the future.
KJ |
