Q&D Analysis - by the numbers
Not necessarily a good way to base an investment decision, or value a company, but thought this analysis was interesting enough to merit a post to this thread.
If you look at RelevantKnowledge (audience measurement company) for May, the public search engines have the following projected total audience figures (I have included AOL and CNET for completeness):
(in ,000s)
Yahoo/Four11 31,362
AOL.com 22,898
Excite Network 19,407
Netscape 18,890 (drop from 21,000 in April)
GeoCities 13,988
Lycos/ Tripod 13,698
Infoseek 13,251
CNet 8,137
No one had as big a drop, by the way, as Netscape. Too early to tell if this is a trend or an outlyer - but in the meantime lets just treat Netscape and and Excite as roughly the same in size.
Based on current market caps, there is an imputed value per visitor that the market has attached to each of these companies. Reasonably, as the market leader, there is a broad gap between Yahoo's multiple and Excite's. Excite, Lycos, and Infoseek are in a very narrow band. CNet, Netscape, and AOL all vary from the model, and their businesses vary, so this makes sense.
If you were to assign a value to Netscape based just on their audience reach, and use Excite's multiple, they would be valued at the low end (based on May audience) at just $1.468 billion. At the high end (based on April audience) at $1.641 billion. Netscape likes to claim that the percentage of their users that are "business" people is higher than the net average. RelevantKnowldge actually does this analysis (I can't tell you the exact numbers without violating our license agreement)and according to them Netscape does not have substantially more people using there service from "work" than Excite. More but not substantially more.
So the interesting question, if you accept that Netscape's "portal" business is worth around $1.5 billion is, what are their server and consulting services businesses worth?
Based on the most recent quarter, NSCP saw $77 million in software revenue and another $55.2 million in services. Annualized, that would give them $308 million a year in revenue as a software company and $220 million as a service company. Anyone out there want to guess comparables for these categories of revenue?
I'll take a first stab, hoping that someone else will come in and rethink this with more rigor (hey, I did the work on digging up the audience numbers :-) )
Here is an example of a software and services company that is in the Intranet business space -- Arbor (ARSW) with a market cap of $369 M. There total 12 month revenue was about $81 million (though they also had earnings of over 3 million for the most recent quarter). So their price to sales ratio is at about 4.6. Applying this multiple to NSCPs annual revenue (as I had projected above) gives them a valuation of $2.4 billion... without the web part of their business.
So together, Intranet software company plus Internet media company would have a valuation of almost $4 billion...
Now I admit that there are a lot of holes in this 15 minute analysis. But I think there is a shred of truth here - that based on market comparables, Netscape is undervalued right now.
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