FWIW
Morning Report
Thu Sep 10
WEBDEX:
Could $16B Buy Top Web Sites?
By Steve Harmon
Senior Investment Analyst
Internet.com
"Where Wall Street Meets The Web"
For 7% of the entire value of Microsoft (NASDAQ:MSFT - news) you could acquire the top 8 Web sites and basically own the Internet's leading gateways. If they'd sell for market prices, which they won't. So let's add a 50% premium in a hypothetical bidding scenario and bring the total to $25 billion, 10% of MSFT market cap. Is there a value gap one way or another?
Mecklermedia's July Sept 2 Sept 9
ercent WEBDEX
Users
Market cap or
PMV*
Market cap or
PMV*
User
User
change
(millions)
(millions)
(millions)
Value
Value
Yahoo
26.6
$7,284
$7,495
$274
$282
2.9%
AOL.com*
22.0
$2,500
$2,550
$113
$116
2.0%
Excite
17.3
$1,409
$1,326
$81
$76
-5.9%
Netscape.com*
17.6
$1,700
$1,750
$96
$99
2.9%
Microsoft.com*
18.6
$2,200
$2,250
$118
$121
2.3%
MSN.com/Hotmail*
16.3
$1,250
$1,225
$77
$75
-2.0%
GeoCities
14.2
$719
$782
$50
$55
8.8%
Lycos
14.5
$966
$927
$67
$64
-4.1%
Infoseek
12.2
$594
$600
$49
$49
1.0%
Disney.com*
9.7
$1,200
$1,100
$124
$114
-8.3%
TOTAL
169.0
$19,821
$20,004
$1,050
$1,051
0.1%
AVERAGE
16.9
$1,982
$2,000
$105
$105
0.1%
*private market valuation estimate for Website only. Estimate based on revenue, users, growth,
brand, mergers and acquisitions, comparables (c) 1998 Mecklermedia (NASDAQ:MECK -
news)
The public stocks in WEBDEX shown here don't seem "undervalued" to any great degree at this
juncture. Perhaps MSFT could be overvalued in a world where any one of these firms above or 25
other Websites in the millions of user range draw users as easily as Windows does.
Said another way, the most talked about, read about, stock-driven "successes" in the Internet
command 1/10th the recognition on Wall Street as just one company: Microsoft.
But combined the top 8 non-Microsoft sites draw a user base that rivals Windows in many ways,
and increasingly acts like an OS (as predicted in Internet Stock Report way back in January this
year).
For the nature of a PC anymore is as an Internet device. No consumer buys a PC for word
processing or spreadsheets any more. These are core offerings but the "sexy, cool" part of a PC
sale is Internet connectivity.
For the period September 2 to September 9 the publicly-traded Websites connected with a mixedof gains and pains. Biggest rise came in GeoCities (NASDAQ:GCTY - news) , up 8% to an
average $55 per user. That followed last week's hammering when anything remotely connected to
"free" and "losses" was anathema to investors running for the exits.
The return to semi-glory for Internet stocks brought back life to Yahoo! (NASDAQ:YHOO -
news) at $282 per user, although the 'we try harder' Excite (NASDAQ:XCIT - news) lost ground,
down almost 6% to $76 per user. There's 271% more expected out of YHOO than XCIT at that
rate. More ecommerce, ads, marketing coups, etc.
At the same time, with Netscape Netcenter and Microsoft MSN/Start, suddenly the browser
comes back to the center of the value proposition once more as the default home page points to
each, with real content there. All of the above, except GeoCities and AOL.com, built their
businesses as Netscape (NASDAQ:NSCP - news) search partners. Each leveraged the Netscape
platform to create their own platforms.
Meanwhile, we think MSN/Hotmail or Microsoft.com may be jumbled in the launch of the new
MSN (or Start) or whatever it ends up being called. HotMail, for example, now seems more like a
word mention on MSN and less a brand now that it's part of the larger site. That costs valuation, in
our view.
Brands can grow and develop loyalty, "subordinating" HotMail may not be the way to maintain its
identity/value.
MSN valuation, meanwhile, may be on the rise after the debut of it as a starting
point/destination/commerce site/news hub/all-in-one bonanza default Web site for Internet
Explorer. That default may be the single biggest weapon Microsoft and Netscape have for their
future--and respective valuations.
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