All, this article about Go2net was recently published in a Canadian publication called Canada Stockwatch.
Since I have not seen it anywhere here on S.I. here it is in its entirety. Note I believe this article was published in the print version of Canada Stockwatch and mass emailed to all their subcribers. If I am breaking any copyright laws I humbly apologize to Canada Stockwatch.
Date:
Mon, 02 Nov 1998 01:24:11 -0800
From:
list@canada-stockwatch.comAdd to Address Book
Subject:
Stockwatch: GO2NET
To:
pure_thing@yahoo.com
Blue sky in cyberspace for Internet IPOs
Tuesday Oct 27 1998
MARKET PONDERS CYBERHYPE IN U.S. INTERNET DEAL
by Stockwatch Business Reporter
Stock traders love the Internet for more than the information it
brings them about the stock market. The new medium also
brings them an abundant supply of new stocks to trade - and
trade they do, often unaffected by such triflings as revenue or
profit.
Taking centre stage this year have been initial public offerings
of website companies. In late September website auctioneer
eBay, Inc. surged to $47 3/8 (U.S.) from an initial $18 in its
first week of trading. In August website host GeoCities closed
up 120 per cent from its $17 offering price on its first day of
trade, at $37.32.
(All figures are in US dollars.)
Many of these Nasdaq-listed companies are semi-free
services whose income depends largely or even exclusively
on advertising. The undisputed leader of this sector is Yahoo!
Inc., trading around $128, whose share price soared from the
$30 range at the start of the year to just over $134 in
September, at which time it also boasted a market cap of more
than $12-billion. All that for a company which posted
consistent and convincing losses on its operations amid
fast-rising but still modest revenues of $114-million.
Few deals illustrate the wild valuations of this sector better
than the $37-million acquisition by go2net, Inc. of the No. 2
financial discussion-site host, Silicon Investor (SI), in June. SI
was founded in August 1995 in Overland Park, Kansas, and
for the year to Dec. 31, 1997 posted revenues of only
$558,091 with a net income of $169,440. In 1996, SI posted
revenues of $8,000 and a net loss of $132,663.
This year, however, SI's revenues have improved. In the three
months to March 31, 1998, the company generated $326,355
in revenues, producing a net income of $85,895.
In another deal involving an Internet discussion site,
Nasdaq-listed CMG Information Services on Oct. 1 invested
in financial message-board host Raging Bull, Inc. According
to published news reports, CMG took a 40 per cent stake for
between $1-million and $3-million, but a CMG spokesman
said the company took only a 12 per cent stake for an
undisclosed price, and that other companies bought in as well.
The total stake taken by all investors may have totalled 40 per
cent, the spokesman says.
CMG was attracted to Raging Bull because of its relatively
high No. 4 status in terms of the popularity of its financial
message-board chat groups - a market it clearly wanted to
enter. The pecking order for financial message-board
websites, according to CMG, is Yahoo!, Silicon Investor,
Motley Fool, and Raging Bull. Other sources, such as Red
Herring, place Motley Fool ahead of Silicon Investor in the
No. 2 spot. A source familiar with Internet discussion groups
says there are around a dozen such financial sites on the web.
go2net acquired SI by issuing 1.25-million shares at the
closing market price of $29.625 for gross proceeds of
$37-million. The merger consideration consisted of 1,238,043
shares of newly issued go2net common stock and 11,957 share
options, raising the total number of go2net shares to 4.5
million.
According to the merger agreement, which made SI a wholly
owned subsidiary of go2net, the term closing market price
referred to the average of the last quoted sale price of go2net
shares for 10 trading days over an agreed-to period. Chief
beneficiaries of the deal were founding brothers Brad and Jeff
Dryer, who were the dominant SI shareholders. The price of
go2net shares, is now around $21 on Nasdaq, but they did slip
to below $15 in recent weeks.
HIT COUNTS
SI has what go2net and the Internet industry in general wants
almost as much as money: visitors, and their user "hits." These
traffic statistics are valuable to commercial websites because
they can translate into advertising revenue.
For Seattle-based go2net, the friendly SI takeover, though
marvellously expensive, was a boost to its overall goal of
hosting a popular and market-targeted stable of interactive
websites.
Whether or not this addition to the go2net mix (which will
result in beneficial "synergy," according to president Russell
Horowitz) was worth $37-million is another matter. Of
course, go2net's tightly controlled shares voted to proceed
with the deal on June 22, and announcement of the merger on
April 23 sent its thinly held stock up $4.125 to $30.75.
Its recent price decline may reflect market conditions as much
as any disenchantment with high-priced Internet stocks.
In a May 1998 filing with the Securities and Exchange
Commission, go2net pegged SI's subscriber list at 60,000, a
current usage rate of over 100 million page views per month,
more than 100,000 unique visitors a day, around 75,000
postings a week, and a data base totalling more than four
million retrievable messages (a figure that now stands at six
million). go2net does not reveal how many of SI's subscribers
have paid the subscription fee or how many have cost-free
lifetime subscriptions. The filing says subscribers "in certain
cases" paid a lifetime membership to participate in SI's
financial discussions.
Initially, SI did not charge its members to post messages on its
site. A charge of $45 was introduced in April 1997, which
was later raised to $125, and now the charge is $100 for one
year or $200 for a full-service lifetime membership. Casual
viewers, called lurkers in Internet parlance, can read any of
the discussions without subscribing, and these viewers are
welcome because they provide SI with a further boost in terms
of overall hits.
By requiring a fee to participate, SI uniquely positions itself at
the quality end of the often rancorous stock-talk spectrum.
Presumably only serious investors, and possibly paid touts,
would want to part with $200 for the privilege of posting their
queries or words of advice about particular stocks. SI
specializes in discussions about technology stocks.
MORE TEA, LESS BEER
While this higher-brow approach appears to have resulted in a
somewhat more civilized and better-quality forum than some
others, many of SI's participants in at least one discussion
thread - the decidedly non-technological issue Crystallex
International, a Vancouver-based South American gold miner -
have routinely posted personal insults, libel, swear words,
and threats against other posters.
In August, poster Valuepro addresses "Wayne" on the
Crystallex forum: "You're full of c##p!" Later, Vancouverite
addresses Valupro: "Eat this, Jerry!" Legendary Crystallex
tout Avalon, who earlier posted 3,400 pro-Crystallex
messages on the competing StockHouse Online Journal site, in
July offered wise words to another poster on SI: "You are
fu%$ing pathetic and without a doubt the biggest LOSER I
have ever come across."
The lesson for SI is that its hoped-for tea room of sober and
measured exchange of views between small investors can just
as easily disintegrate into off-topic babble, haranguing and
personal attacks between those on the long and short side of a
stock. All this can add up to a sometimes unpleasant
experience along the lines of a down-market beer parlour at
closing time.
Then there are suspected on-line promoters who pose as
independent investors. This has the potential of turning off a
lot of forum participants because it is difficult to tell the
difference between a persistent company advocate who touts a
stock, such as Avalon, and an enthusiastic small shareholder
who does not.
All this becomes a lot worse when touts become aggressive
towards those who fail to fall in line with "correct" comments
about a stock and attempts are made - often successful - to
force out those who disagree with self-styled forums leaders.
SI webmistress Jill McKinney says the company does not
remove posters they suspect of being paid to tout stocks. "We
advise people to always do their own research and not
believe things they read on the boards," she told the Wall
Street Journal in July. Ms. McKinney's comments followed
revelation that one of its members was Daryn Fleming,
president of Wall Street West. Mr. Fleming's company is paid
to issue "buy" recommendations on the Internet, the Journal
reported.
'OUR BELOVED SI'
Generally, however, SI's discussion sites appear to be a cut
above the competitions' on a number of fronts - at least that's
what SI's legions of adoring fans believe. Not only does its
quality of posts win applause from its subscribers, but SI also
garners plaudits for its design, layout and the speed of its
servers. As a result, this has engendered a fierce loyalty
among its subscribers, who refer to the company as "our
beloved" Silicon Investor and who from time to time fret that
their favourite forum will change for the worse as a result of
go2net's ownership.
"There is no question or contest," wrote SI booster Prosperous
Soul on July 26. "SI is both leader and standard bearer when it
comes to postings, information, thread layout, design and ease
of navigation. Prosperous Soul goes on to say that SI, while
hosting stock "bashers," is still more civilized than Yahoo!,
"where stock bashers will say every nasty, filthy, dirty word
imaginable."
Another SI supporter, Robin Messing, notes that lengthy
messages can be posted on SI, but not so on Yahoo!. "Yahoo!
only lets you post messages that are a few paragraphs long,"
Mr. Messing says, adding that he has posted documents on SI
that are dozens of pages. Another, Henry Volquardsen, said on
July 27 that he has followed several stock threads on Yahoo!
and "found them to be infested with nonsense." Mr.
Volquardsen adds that he checks back at the Yahoo! forums
and "it seems to be getting worse and not better."
SI has discussion forums devoted to SI - seven in total - where
critics and supporters exchange views and information about
the company, its personnel and its forums. Many of the
comments made there criticize not only Yahoo! but other
competing forums, such as Raging Bull, where the most active
Crystallex discussion group is found. Cliff Daniels posted on
Oct. 2: "From past experience, Raving Bull (sic) is a place
where the hypsters in training often rendezvous in favour of
the ignore button," referring to RB's unique feature that blocks
out unwanted posters.
Cofounder Brad Dryer is a fixture on the Welcome to Silicon
Investor forum, answering questions about the service and
dealing with the occasional barb. One SI naysayer, Lisa, is
critical about many aspects of the company and has complaints
about everything from technical matters to her treatment by SI
staff and aspects of SI's promotional literature. She even
hinted that go2net's recent share price drop might be attributed
to the SI buyout.
COMPETING CLAIMS
Surprising claims about the popularity of competing sites
appear to be common in this industry. Vancouver-based
StockHouse, a financial-information site and discussion
forum, claims to receive 150 million hits per month from over
150,000 consistent users. StockHouse is a free service that
depends on advertising revenues.
Set up as a unit of Berwick Management, StockHouse claims
in its promotional literature that it hosts "the largest chat/forum
on the World Wide Web."
go2net makes a similar claim about Silicon Investor, claiming
in its promotional literature that SI is "the largest discussion
community on the Web." Further, go2net says SI holds the
"No. 1 market position for financial discussion both in terms
of quantity and quality of messages."
Irrespective of competing and conflicting claims in the market,
the SI acquisition brings to go2net a portion of the market -
financial discussion groups - where go2net had previously not
been a player. go2net attracted its customers with what it calls
a "network of websites," including a search-index guide
(MetaCrawler), a Java-based multiplayer on-line games
station (PlaySite), a financial-information site containing
proprietary and agency news (StockSite), which is being
amalgamated with SI, and a comparison-shopping service
(WebMarket).
StockSite is a lesser-known player among
financial-information websites but nevertheless was claimed
by go2net as having 150,000 unique users and a community of
one million. The new combined site will offer discussion,
proprietary market analysis, portfolio services, and charting.
Visitors to StockSite are linked to SI's discussion forums.
According to press reports, go2net says the acquisition of
Silicon Investor will boost total traffic to around 180 million
page views a month.
See next post for part 2 |
