******Undervalued Dog****** Volume 4, No. 4, February 18, 1999
analystgroup.com
A Leading Provider of Independent Stock Advisory Newsletters
ANALYSTGROUP.COM Initiates Coverage of Datalink Systems Corporation
Initial Recommendation: STRONG BUY
Datalink Systems Corporation (OTC BB: NETD)
Industry: Internet and Wireless Information Service
Recent Price: $3.00
Daily Average Volume (3 Month Avg.): 15.6 K
Market Cap: $6.09 million
52-Week Range: $0.625-$7.375
Outstanding Shares: 2.03 million
Active Float: 900 K
% Owned Management and Insiders: 55.7
1998 Revenue: $0.962 million
Estimated 99 Revenue: $2.50 million (ended March. 31, 1999)
Estimated 99 EPS: -$2.02 (ended March 31, 1999)
Projected 2000 Revenue: $39.6 million
Projected 2000 EPS: $1.27
Trailing P/E (1998): N.M.
Current P/E (last 12 months): N.M.
Forward P/E (2000): 2.36
Industry P/E: 165.8
Price/Book: 2.85
Industry Price/Book: 12.64
Cash (MRQ): $2.36
Total Cash: $4.79 million
Gross Margin (%): 55.13
Estimated Net Profit Margin (%): 6.5%
Quick Ratio (MRQ): 2.97
Industry Quick Ration (MRQ): 1.78
Current Ratio (MRQ): 3.01
Industry Current Ratio (MRQ): 2.65
Debt/Equity (MRQ): 0.03
Industry Debt/Equity (MRQ): 0.44
Insider Trend Index: Positive
Recommendation: Strong Buy
Target Price: $15-$20 for next 6-12 months
BUSINESS SUMMARY AND CORPORATION BACKGROUND: Datalink Systems Corporation (OTCBB: NETD) is in the business of developing and marketing information services for business and personal use, utilizing wireless and other emerging information delivery technologies. NETD is the first Internet-based company to deliver premium, personalized financial and lifestyle information to wireless devices. Its Web-to-wireless platform combines real-time data feeds, the World Wide Web and wireless communications. These services deliver individually tailored information customers want, when they want it. Datalink.net is rated the number one choice for wireless financial information by SmartMoney magazine. Company services are marketed through Datalink.net's e-commerce Web site at datalink.net. The services include QuoteXpress® (Real-time stock quotes alerting members to the changes they specify, such as price changes or high trading volume); SplitXpress (Subscribers can stay on top of breaking market news, such as stock splits, mergers or acquisitions, in real-time); CommodityXpress (Tracks all major commodity exchanges, including highs, lows and daily closing in real-time); CompanyNews(SM) (Provides the latest news stories and press releases from specific companies specified by the subscriber); Sports2Go(SM) (Provides personalized real-time sports coverage with up-to-the-minute scoring updates and breaking game events); InfoXtra(SM) (Provides personal lifestyle information including horoscopes, local weather forecasts, lottery results, ski & beach conditions, top video rentals and more); MailXpress(TM) (Alerts you to user-specified, important email deliveries).
DataLink also provides a free wireless messaging service. Anyone with Internet access can send messages to pager and PCS phone consumers who are registered MessageX subscribers. Phone and pager users register at messagex.com. DataLink will be offering the free MessageX service to Internet companies such as search engines and Internet Service Providers, and wireless service providers as a value-added service. DataLink is working with numerous partners to customize service packages for re-sale, which involves tailoring DataLink's current service offering and developing new services based on a partner's unique content.
RECENT DEVELOPMENTS: On Jan. 11, 1999, NETD announced the introduction of its free, 45-day sampler of premium financial, sports, news, weather and lifestyle services to any wireless device. The free InfoSampler(SM) service is a selection from DataLink's real-time products: QuoteXpress®, CompanyNewsX(SM), Sports2Go(SM) and
InfoXtra(SM). InfoSampler includes real-time stock quotes, alerts on public company news, sporting event coverage -- even during the game, plus news headlines, weather forecasts, ski & beach conditions, winning lotto numbers, horoscopes and even the top 10 weekly video rentals. All information is delivered to a pager or PCS mobile phone.
Subscribers use DataLink's Internet site to setup and customize both the type of information they want and when they want to receive it. DataLink uses it own patented, intelligent agent, Web-to-Wireless™ technology, to monitor and filter numerous electronic feeds for the information the subscriber wants. DataLink then transmits the information to the subscriber's PCS phone or alphanumeric pager through their existing service provider in real-time. Free trial subscriptions are available to customers of virtually any wireless company in the U.S. and Canada. Wireless subscribers can sign up for the free service at Datalink's web site, datalink.net. The service will also be distributed through DataLink's channel partners, such as SkyTel Communications of Jackson, Mississippi, and through its new retail reseller program. Signing up for InfoSampler is simple using DataLink's intuitive Web site and the process can be completed in a few minutes. Users can begin
receiving custom tailored real-time financial alerts, world news headlines and stories, real-time sports coverage and a range of other services in no time.
On Jan. 19, 1999, NETD announced it is changing its name to Datalink.net to more accurately reflect the company's new Internet-based strategy. Pending formal
shareholder approval, Datalink will be doing business under the name Datalink.net. The shift in the corporate name closely follows the recent change of the company's stock symbol to NETD. ''The change to Datalink.net reflects the company's new strategy to leverage our Internet core competency, which includes our e-commerce
initiatives,'' said Datalink.net CEO Anthony LaPine. ''All of our products are driven by our Web-based customer interface, which enables our subscribers to customize their services and maintain their accounts. The Web is also where new customers sign up for our services using our integrated e-commerce system. Datalink.net is to wireless information what Amazon.com is to books.''
On Jan. 20, 1999, NETD announced that it has launched six new wireless information services specifically for SkyTel (NASDAQ: SKYT) advanced messaging pager customers. The new services are the next step in the Datalink.net/SkyTel marketing partnership that was announced in July 1998, and include a free sampler service that customers can try for 45 days. The newest offerings include a variety of free and fee-based services including ''While You Were Sleeping'' Asian market updates, real-time commodity quotes, sports scores and news, company news, local weather, ski reports, horoscopes and other lifestyle information services delivered to SkyTel pagers. These services join the real-time stock quote services introduced last summer. In addition, the new InfoSampler service lets customers try out a variety of these services free of charge. These new products marry the Internet to SkyTel's wireless messaging devices. With these services, customers use the Internet to specify information that is of interest to them and have it sent directly to their pagers, as it happens. To sign up for the free InfoSampler service, or the premium subscription services, customers simply go to www.datalink.net/skytel and follow the on-screen instructions.
SkyTel, skytel.com, headquartered in Jackson, Miss., is a leader in wireless messaging, serving more than 1.5 million customers. Since 1989, the company has led the paging sector toward true nationwide paging through a series of innovations that culminated in SkyTel two-way interactive service. This enables customers to exchange messages with other pagers and the Internet and send messages to any telephone in the U.S.
On Jan. 26, 1999, NETD announced the launch of a new retail marketing program to sell its wireless information services with Totally Wireless, the company's first strategic alliance to take advantage of an important new retail program. Totally Wireless, a retail wireless chain with stores primarily on the West Coast, will market all of Datalink.net's wireless information services to customers nationwide, both in their retail stores and on the Internet. These services include real-time stock and commodity quotes, breaking financial market news, real-time sports coverage, weather and news headlines, email alerts -- all delivered to customers' wireless devices. As an introductory offer, Totally Wireless is offering a free 45-day trial version of Datalink.net's services with its newest product, InfoSampler(TM).
InfoSampler will be offered to new customers at the time of purchase, and to existing customers on its Web site at totallywireless.com. In Addition to InfoSampler, Totally Wireless will market the following Datalink.net services in its stores and on its Web site.
On Feb. 5, 1999, NETD announced its new partnership with Wall Street Web Inc.'s StockRumors.com, a provider of the latest ''buzz'' and stock rumors from Wall Street.
Datalink.net and StockRumors.com developed a new wireless information service called RumorsXpress(SM) by StockRumors.com that provides subscribers with a wireless link to the rumors posted on the popular stockrumors.com Web site. RumorsXpress by StockRumors.com alerts wireless consumers with industry and company rumor information collected by Wall Street Web. Inc.'s StockRumors.com Web service as soon as the buzz goes from the Wall Street rumor pipeline to the StockRumors.com offices. While the stock rumors provided with the service are not factual information and neither StockRumors.com nor Datalink.net recommend reliance on the rumors for investment decisions, during last year 106 stock rumors provided by StockRumors.com became reality. New customers can subscribe to receive wireless rumors on both the Datalink.net Web site and the StockRumors.com Web site to get tapped into the Wall Street rumor pipeline and receive the latest rumors via their wireless device.
On Feb. 8, 1999, NETD announced its Web-to-Wireless Affiliate Program. The program
gives any Web site the opportunity to gain sign-up bonuses and recurring revenue, at no cost, when they promote Datalink.net products on their Web site. The Affiliate Program lets any business or organization offer any standard Datalink.net service by displaying a text link or banner ad promotion, provided by Datalink.net, on the affiliate's Web site. When site visitors click-through, Datalink.net provides all service and customer support. The affiliate need only support the text link and banner ad.
In exchange for the banner and text links, Datalink.net pays the affiliate a sign-up bonus and a percentage of the generated recurring quarterly revenue. Unlike other affiliate programs, Datalink.net provides a recurring revenue stream from each customer who maintains their subscription to Datalink.net's subscription Web-to-Wireless information services.
On Feb. 9, 1999, NETD announced the availability of its newest product, FYI Infocast, which consists of 25 new wireless broadcast channels. FYI Infocast is available free
to any of SkyTel's customers who have advanced messaging pagers with guaranteed delivery and two-way messaging. SkyTel advanced messaging paging customers can receive any or all of the 25 FYI Infocast channels for free as part of their pager service. The initial release of FYI Infocast channels is all free, and Datalink.net is planning to add additional premium fee-based channels in the near future. The
customer can sign-up for new channels or make any subscription changes quickly and easily on the Web site. FYI Infocast channels include financial news (Winners and Losers, for all major U.S. stock exchanges, Commodity reports for Agriculture, Metals & Energy), Industry news (Service, Internet, Communications, Business, Healthcare), general information (Word of the Day, World Headlines, Weather, Trivia Challenge), sports (Sports News, MLB Sports, NHL Scores, College Sports) and entertainment (Movie Channel, Video Channel, Music Channel, New Book Reviews).
TECHNICAL ANALYSIS: The stock peaked little over $7 last April. Since then, the price declined steadily. Since Jan. 1, 1999, the stock trading has been active and the price directly went north up to $4.00 in the first several trading days of the new year. Then the price retreated a little bit and consolidated around $2.50 to $3.00. We believe the stock price is ready to move to new highs. On Balance Volume suggests accumulation is going on and relative strength has been up since Jan. 1, 1999.
SUMMARY: The world is currently undergoing an "Information Revolution," evidenced by the rapid adoption of personal computers, cellular phones and pagers. The recent explosion of interest in the "Information Superhighway" and services such as the Internet are examples of the increasing demand for electronic communications and information, by business and personal users alike. With over 42% of the work force mobile, or roughly 48 million people, wireless data communication is emerging as one of the most important strategic technologies of the 1990s. The explosive use of notebook and palmtop computers and the variety of recently introduced personal communication devices (the products largely responsible for wireless data communication and mobile computing) - are testimony to the increasing demand for wireless communication technologies. Industry analysts, such as The Yankee Group predict that "the wireless data user market will quadruple over the next five years, driven by the demands of a new generation of mobile professionals and the availability of better tools for migrating current applications to the wireless/mobile environment." Recent developments in alphanumeric paging technology have created enormous opportunities for niche market applications that are built around paging networks. Paging subscribers will grow from about 40 million in 1996 to 70 million by the year 2000 (Source: Northern Business Information). The Canadian Market for cellular paging and wireless data services is expected to grow from 3 million to 12 million users by the year 2000 (BIS Strategic Decisions). Industry analysts predict that this growth will principally come from the "lifestyle" (personal) sector. The availability of new services, such as those offered by DataLink will contribute to this growth.
DataLink's services give users remote access to real-time information, including financial and sports news. The services also alert users, via pager, to the presence of critical e-mail and allow e-mail retrieval and response via the Internet, facsimile or voice mail. Unlike other mobile communications suppliers, DataLink's services allow the user to determine which information warrants an alert. By setting "filters," the DataLink user can personally determine the criteria for forwarding information. A corporate executive may decide to be alerted if and only if a stock exceeds a certain price or if and only if an e-mail from a certain business colleague is received. This filtering capability allows the executive to prevent less important information from interrupting his golf game or family outing, while assuring that time-critical news gets to him or her instantly. Although Datalink's alert services utilize paging technology, DataLink offers personal information services using other wireless technologies, such as PCS phones, and wireless PDAs. By providing innovative communications services, DataLink empowers mobile professionals around the globe.
As on-line investing and individual finance management are popular more than ever, the services provided by NETD is going to become more and more in demand in the market place. Over 6 million on-line accounts have been opened in the first two months of 1999, up from 2.8 million on-line accounts in the early of 1998. More and more people are directly involved in personal finance management at least on a weekly basis, if not on a daily basis. Datalink.net products uniquely link personalized content available from premium news feeds and the Internet to wireless communications devices such as pagers, PCS phones and PDAs. Subscribers customize time-sensitive, high-value information and are kept appraised of the topics that are of most interest to them. Datalink.net is the first Internet-based company to deliver premium, personalized financial and lifestyle information to wireless devices. Its Web-to-wireless platform combines real-time data feeds, the World Wide Web and wireless communications. These services deliver individually tailored information customers want, when they want it. Datalink.net is rated the number one choice for wireless financial information by SmartMoney magazine. We see substantial appreciation potential both from earnings growth and increased recognition. This could be multiplied if investors come to realize that the company is increasingly involved in Internet services and wireless communication. With invention of smart cellular phone and pager, individuals can communicate via both web to wireless and wireless to web. That means investors don't have to worry about jammed Internet traffic and phone line by managing their accounts via wireless cellular phone and pager.
With its tiny market cap ($6.06 million), there is big potential upside for NETD if it gets recognition. Because the company has revolutionary products in the right time and there is little COMPETITION in the market place. DataLink is first-to-market in the wireless information service industry with a product of unmatched quality and value. The competitors offer products that are technologically inferior and less economical. Some rivals even require purchase of expensive proprietary receiving devices and have significantly higher monthly rates and often charge additional fees for real-time data. For example, the closest and most established competitor, Data Broadcasting Corp. (NASDAQ, DBCC), whose QuotrekTM currently leads the financial information delivery products, uses FM sub-carrier technology, charges almost $300 for a special receiving unit and over $130 in monthly charges, as compared to DataLink's QuoteXpressTM price of $39.95 including a pager, or $19.95 without it. We believe the DataLink brand name has significant value.
We feel that new aggressiveness of the company's product marketing is likely to help achieve that recognition, as well as accelerate growth. In the fiscal year of 1998, the company achieved revenues of $0.962 million, about 400% up from 1997 revenues. We estimate that the company will achieve revenues of $2.5 million in the fiscal year of 1999 ended on March 31, 1999, up 160% from 1998. The company is not be able to make any money this year due to low volume of subscription of its services. But it will be a completely different ball game in the fiscal year of 2000 that will start April 1, 1999. The company just signed deals with Skytel, totallywireless and stockrumors.com that have over 2.0 million wireless customers and individual investors. Also, the company just established Web-to-Wireless Affiliate Program. The program gives any Web site the opportunity to gain sign-up bonuses and recurring revenue, at no cost, when they promote Datalink.net products on their Web site. The Affiliate Program lets any business or organization offer any standard Datalink.net service by displaying a text link or banner ad promotion, provided by Datalink.net, on the affiliate's Web site. When site visitors click-through, Datalink.net provides all service and customer support. The affiliate program needs only support the text link and banner ad. In exchange for the banner and text links, Datalink.net pays the affiliate a sign-up bonus and a percentage of the generated recurring quarterly revenue. Unlike other affiliate programs, Datalink.net provides a recurring revenue stream from each customer who maintains their subscription to Datalink.net's subscription Web-to-Wireless information services.
Further, the company is aggressively looking for major distribution channels with major Internet and telecommunication companies. That means the company's wireless information services can reach tens of millions of customers and individual investors. Let's assume the company will have 1% market penetration (we believe it's a very conservative number), the company will sign up 100,000 customers in the first year. Average service charge for each of eight wireless information services that the company provides is $27.50/month. Let's assume each of the customers will use only one of eight services (In fact, some customers may two or more services), the company will achieve annual revenues of $27.50/month x 12 months x 100,000 customers = $39.6 million. The gross profit margin for the company is 55.13%. Let's assume net profit margin is 6.5% (it's a very conservative number in terms of its gross profit margin), so the company will earn $1.27 per basic share in the first year of its aggressive marketing. The upside potential is huge for this stock! Thus, our conservative target price is $15-17 and aggressive target price is $18-$20 for next 6 to 12 months.
CONTACT:
Datalink.net
Investor Relationship
Paul Roberts
Tel: (408)367-1724
E-mail: p_roberts@datalink.net
or
Simon/McGarry Public Relations
Michael Adler
Tel: (650)596-5877
E-mail: madler@shandwick.com
Home Page: datalink.net
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