BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
mailto:Keith@rsco.com
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February 5, 1999
The Web Report – Volume 2, Issue #5
This week the NETDEX index closed at 694.6, down 5.4% over last week,
and up approximately 550.2% over the same period last year. For
comparison, the NASDAQ ended the week down 2.7% over last week, and up
43.4% from the same date last year.
We are again encouraged by signs of rational stock behavior, with stocks
moving up and down with the market, and signs of more discrimination.
With reporting season almost over, there should be weeks without
fundamental news to move stocks, suggesting continued gyrations.
Anecdotally, we hear of significant amounts of shares being sold by
insiders among Internet companies as lock-ups expire, creating downward
pressure on some stocks. Still, we expect the general trend will be up
near-term, helped by further consolidation and the first wave of 1999
IPOs catching investor attention. Looking backward, most of the major
content-based networks appear to have been established. Looking
forward, a surprising number of companies are demonstrating new segments
of commerce that are shifting to the Web. However, many companies are
coming public at earlier stages with debatable market potential. Over
the first half of 1999, we expect to see investor appetite tested.
While we want to trade with a bias to the long side, we want to be very
careful about what we hold as stocks spike up. While it is easy to be
distracted by some small companies with big valuations, we must continue
to focus on the big companies that continue to provide positive
surprises and should justify big valuations.
AOL KEEPS SHOWING US HOW MUCH MONEY CAN BE CAPTURED ONLINE – How much
activity and money will move online? AOL demonstrated the magnitude of
the medium again this week, receiving a big bounty to market credit
cards and acquiring MovieFone.
A RECORD $500 MILLION DEAL TO MARKET CREDIT CARDS - AOL renewed its
relationship with BancOne's First USA unit in the largest e-commerce
deal to date. First USA remains the premiere marketer of credit card
services on AOL, AOL.com, and Compuserve. First USA is paying AOL a
bounty to have access to AOL members to market its credit card
packages. Moreover, AOL will be rewarded for volumes of spending using
the cards at stores on AOL. The card is co-branded with AOL, offers
competitive rates, and online statements. The 5 year deal is estimated
to be worth $500 million or more to AOL, depending upon usage, with a
guarantee around $300 million, by our estimate. This is not small. For
perspective, First USA is paying $25 to reach each of our projected 20
million AOL members. We believe it could add as much as $0.01 to EPS
per quarter, although we have not raised estimates yet. AOL's members
have proven responsive to compelling offers, providing profit both to
partners and AOL.
“HELLO! AND WELCOME TO MOVIEFONE!” AOL announced plans to acquire
MovieFone, for an estimated $388 million in stock. MovieFone's 777-FILM
number provides access to information on local movie times. MovieFone
generates revenues through an incremental $1.50 charged on movie ticket
purchases made using the phone or Web site service. In addition,
MovieFone receives revenue from Hollywood studios, whose films may be
featured on the service. We view this acquisition as an attractive
addition to the local content offerings AOL provides through Digital
Cities. Whereas Digital Cities is currently supported primarily by
advertising revenues, this deal adds an e-commerce component to the
model. For reference, for the September 1998 quarter, MovieFone
reported $5.9 million in revenues, and a loss of $925,000, or ($0.07)
per share.
CNET STOCK STARTING TO REFLECT MONSTER STATUS - CNET's stock has finally
started to catch up with the group, helped by takeover activity and
anticipation of results to be reported next week. The stock has
appeared penalized for managing growth to achieve profitability, rather
than pushing revenue growth at the expense of losing money. Over the
last few quarters, CNET has successfully rolled out a commerce strategy,
which has been demonstrating accelerating revenue growth. As the
leading computer/technology content network, CNET receives lead
generation fees as it refers buyers of computer-related products to
various Web stores. Earlier in the week, it announced the acquisition
of Netventures, which provides tools to help buyers design and purchase
white-box or custom computers. Its other investments have paid off,
including its 10% investment in Vignette, which may be worth $2.00 per
CNET share, based on the expected filing range of Vignette's IPO. We
believe the fundamentals now justify the stock price. The market
capitalization is now $2.4 billion. We believe EPS can well exceed our
$1.35 estimate for 2001, suggesting the stock price is reasonable on a
classic P/E basis. However, while the company is demonstrating leverage
from commerce, we expect it may increase the investment in site
improvements as part of its CNET 2000 initiative and related marketing.
Previously, CNET had less incentive to build traffic outside of its core
base of IT professionals. Regarding CNET's attractiveness as a takeover
candidate, we would not be surprised, but believe it would be unlikely.
The logical buyer might be NBC, which has already helped CNET with the
spin-out of Snap!, but NBC does not have the currency to easily afford
such an acquisition. The Web networks, like AOL and Yahoo! could
someday consider acquiring CNET, but CNET has no compelling strategic
reason to sell. CNET has critical mass as an independent company, in
our view.
SPORTSLINE SHINES AT THE SUPERBOWL - Super Bowl XXXIII proved big for
SportsLine, which received approximately $800,000 in sponsorship
revenues from 7 major advertisers for its coverage of the event.
Advertisers included Philips, IBM, Budweiser, Mercedes-Benz, Pepsi-Cola,
Career Path, and Sports Collectors Club. SportsLine also posted a
record-breaking day in merchandise sales following the Super Bowl, with
more than 1,100 orders placed. Looks like those Denver fans couldn't
wait to get their hands on Elway t-shirts, pins, hats and other
memorabilia, featured in SportsLine's Sports Store. As the football
season ends, we expect NBA and NCAA basketball will help continue the
traffic momentum. March Madness is just around the corner. While the
company still must cover some ground to catch up with category leader
ESPN.COM, we believe its newly launched distribution deals with AOL and
Excite will help boost traffic and the stock this quarter.
E-Tailing Update – mailto:lauren_cooks_levitan@rsco.com
E-TAILERS HIGHLIGHT SUPER BOWL SUNDAY – While football fans turned to
Sportsline during commercials, we found entertainment and insight into
trends. We are big fans of the Budweiser frogs, lizards, and now
lobsters. However, the Web award goes to Victoria's Secret and its
subtle advertisement for its Web site, which received over one million
hits within the hour following its first Super Bowl commercial. The
30-second spot announced the live Webcast of a Spring Fashion Show on
victoriassecret.com. We believe many retailers will be able
to capitalize on big brands with the right Web spin. Certain
categories, like fashion, are unlikely to yield Web-based competition.
Other retailers bringing catalogs to life include Gap.com. This week's
example just highlights that the mass-market shift to shopping online is
continuing to ramp past Christmas 1998.
THE BIG PICTURE - The Internet companies appear to be taking mind share
and revenues from existing media and commerce companies, while creating
some additional value through efficiency of the Web. Thus, our
benchmark for valuation remains those non-Internet companies that have
been around long enough to allow calculation of value based on current
earnings.
This week the market capitalization of the 50 companies in the NETDEX
index is approximately $227.0 billion. This compares to the top 20 media
companies, which have a combined market capitalization of approximately
$450.1 billion. In the retail category, Wal-Mart's market
capitalization is approximately $ 185.9 billion.
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Rating 2/4 1/28 1-Wk 52-Wk
Chg
Chg High 52Wk Hi
1/28 - to 2/4
2/4 Price
Amazon AMZN BUY 118 122 7/8 -4% 199 1/8 -40.7%
Am.Online AOL SBUY 169 174 4/9 -3% 177 1/2 -4.8%
CMG CMGI LTA 121 116 4% 155 -21.9%
CNET CNET BUY 138 91 1/8 51% 154 3/4 -10.9%
Dig.River DRIV BUY 43 1/3 50 3/4 -15% 61 3/8 -29.4%
DbleClick DCLK BUY 96 1/2 94 7/8 2% 114 5/8 -15.8%
Ebay EBAY BUY 239 292 5/8 -18% 321 -25.5%
E*Trade EGRP BUY 53 1/2 49 3/4 8% 66 3/7 -19.5%
Excite XCIT NR 101 1/5 116 -13% 125 -19.1%
Gemstar GMSTF BUY 66 58 4/7 13% 69 5/8 -5.2%
Getty GETY BUY 20 4/9 19 3/8 5% 28 1/4 -27.7%
Lycos LCOS BUY 129 3/8 123 1/8 5% 145 3/8 -11.0%
NetGrav. NETG BUY 20 1/4 26 4/5 -24% 32 1/2 -37.7%
Net.Sols. NSOL BUY 199 7/8 215 -7% 260 3/8 -23.2%
NewsEdge NEWZ MP 11 1/3 11 5/8 -3% 19 3/4 -42.7%
N2K NTKI MP 16 1/4 15 7/8 2% 34 5/8 -53.1%
Onsale ONSL BUY 45 46 4/7 -3% 108 -58.3%
Prev.Trvl. PTVL BUY 29 5/8 24 3/4 20% 44 -32.7%
Infoseek SEEK MP 72 84 -14% 100 -28.0%
SptsLneUSA SPLN BUY 38 35 3/4 6% 50 1/2 -24.8%
TicketMaster Online
CitySearch TMCS BUY 56 3/4 64 -11% 80 1/2 -29.5%
Yahoo! YHOO BUY 337 367 3/4 -8% 445 -24.3%
NETDEX Index
NETDEX 694.63 734.30 -5.4% N/A 550.2%
KEBDEX Index
KEBDEX 879.03 927.09 -5.2% N/A 714.5%
NASDAQ Composite Index
COMQ 2,410.07 2,477.34 -2.7% N/A 43.4%
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(1) Change based on last 12-month's performance.
Source: AT Financial Information and BRS Estimates
BancBoston Robertson Stephens maintains a market in the shares of
Amazon.com, Cisco Systems,CMG, CNET, Preview Travel, Digital River,
DoubleClick, eBay, E*Trade, Excite, Gemstar, Getty, Infoseek, Lycos,
NetGravity, Network Solutions, NewsEdge, N2K, ONSALE, Preview
Travel,
SportsLine, TicketMaster Online-CitySearch, Yahoo! and has been a
managing or comanaging underwriter or has privately placed securities
of Digital River, eBay, E*Trade, Excite, NetGravity, ONSALE, Preview
Travel, TicketMaster Online-CitySearch and SportsLine within the past
three years.
For additional information, call your BancBoston Robertson Stephens
representative at (415) 781-9700.
(1) Change based on last 12-month's performance.
Source: AT Financial Information and BRS Estimates
Rating Definitions: The following are basic definitions for our
recommendation ratings.
Strong Buy – Rating for a stock, which we believe could have
significant, positive price movement near-term. Therefore, we would be
aggressive buyers of the stock.
Buy – Rating for a stock, which we recommend buying, however believe
there may not be near-term news or events to move the stock price.
Long-Term Attractive – Rating for a stock, which we believe could have
long-term value, however we would not necessarily recommend buying.
Market Performer – Rating for a stock, which we believe will perform at,
or below, market levels.
BancBoston Robertson Stephens maintains a market in the shares of
Amazon.com, CMG Information Services, CNET, Dialog, Digital River,
DoubleClick, Ebay, Inc., E*Trade, Excite, Gemstar, Getty, Infoseek,
Lycos, Microsoft, NetGravity, Netscape, Network Solutions, NewsEdge,
N2K, Onsale, Preview Travel, SportsLine USA, Ticketmaster/CitySearch,
and Yahoo! and has been a managing or comanaging underwriter for or has
privately placed securities of Digital River, Ebay, Inc., E*Trade,
Excite, Onsale, SportsLine USA and Ticketmaster/CitySearch within the
past three years.
FOR ADDITIONAL INFORMATION, PLEASE CALL YOUR BANCBOSTON ROBERTSON
STEPHENS REPRESENTATIVE AT (415) 781-9700.
Unless otherwise noted, prices are as Thursday, February 4, 1999.
The information contained herein is not a complete analysis of every
material fact respecting any company, industry or security. Although
opinions and estimates expressed herein reflect the current judgment of
BancBoston Robertson Stephens, the information upon which such opinions
and estimates are based is not necessarily updated on a regular basis;
when it is, the date of the change in estimate will be noted. In
addition, opinions and estimates are subject to change without notice.
This Report contains forward-looking statements, which involve risks and
uncertainties. Actual results may differ significantly from the results
described in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in
"Investment Risks." BancBoston Robertson Stephens from time to time
performs corporate finance or other services for some companies
described herein and may occasionally possess material, nonpublic
information regarding such companies. This information is not used in
the preparation of the opinions and estimates herein. While the
information contained in this Report and the opinions contained herein
are based on sources believed to be reliable, BancBoston Robertson
Stephens has not independently verified the facts, assumptions and
estimates contained in this Report. Accordingly, no representation or
warranty, express or implied, is made as to, and no reliance should be
placed on, the fairness, accuracy, completeness or correctness of the
information and opinions contained in this Report. BancBoston Robertson
Stephens, its managing directors, its affiliates, and/or its employees
may have an interest in the securities of the issue(s) described and may
make purchases or sales while this report is in circulation. BancBoston
Robertson Stephens International Ltd. is regulated by the Securities and
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The securities discussed herein are not FDIC insured, are not deposits
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Copyright * 1999 BancBoston Robertson Stephens |
