The following is a reply to Kevin Hansen from another location that I am copying here for other people's viewing.
To: Kevin Hansen (5281 )
From: Andrew Vance
Feb 17 1997 5:49PM
*AV*--As promised, the following is the information relative to NETC that I alluded to. If you remember, when I mentioned NETC as an investment, you asked for further details and whether others believed it was a takeover candidate. I said I would find the information and publish it. So here goes.
Week of Novemeber 25, 1996 from CS First Boston Corporation.
Netcom Online Communications (NETC) Small Cap featured Industry
Netcom is on the Threshold of a Defining Moment-The Stock Could Bounce Back, The Company Could Be Acquired, or It Could Disappear.
Netcom's Target Market Focus, Service Offerings, and Partnerships Make its Market
Position Defensible and Offer Upside.
Opinion:BUY
We beleive the internet will maintain its torrid growth and that both the breadth and
value of Internet offerings will increase.......
Netcom is the leading independent Internet service provider (ISP) targeting
sophisticated individual and business users. We believe this company is poised at a
pivotal and possbilbly defining moment in its histroy due to the confluence of a mixed
bag of issues that include the company's steadily increasing subscriber count, product
value, and brand image. These are countered by the company's significant cash burn
rate,....new ISP competition, which together have contributed to a steady slide in the
company's stock price...
Netcom's strategic defensibility lies in (1) its ability to offer an expanding product line
built to the specific needs of its fairly homogeneous target market, (2) the quality level
and increasing brand recognition of its service, and (3) its successful pursuit of size and
critical mass: $32 million in revenues and 562,000 Paying subscribers as of the third
quarter of 1996.....
...although the overall internet is growing quickly, we beleive Netcom's target market
segment- the more sophisticated user-should grow faster than the overall market.....
We also find support for our thesis in certain of Netcom's operational and marketing
successes including:
a. Consistent customer churn rates over the last seven quarters, during a period when
many major competitors entered the market.
b. Reasonable customer acquisition costs, which fell in the third quarter of 1996.
c. A high level of customer loyalty and industry level service recognition.
d. Consistent overall growth, even as growth at online services has stumbled.
e. More than 560,000 paying subscribers.
Finally, we beleive there exists upside from Netcom's future product offerings,
partnership arrangements, and current valuation. Future product lines include
noteworthy opportunities: voice Telephony over the Internet, voice and Fax store and
forward, and satellite Internet downloads from Direct TV and Internet advertising.
Partnership arrangements include the company's distribution arrangement with
Microsoft (Netcom software comes pre-istalled on the desktop of all new Windows
95 PCs) as well as bundling agreement with Netscape Navigator.
There exists an interesting valuation relationship between Netcom's stock price and
both its book value and cash position per share. After the second quarter earnings
report, Netcom's stock was selling at less than $20 per share, with cash per share of
approximately $9.60. The stock price was below $15 in third quarter, with cash per
share of approximately $ 7.50 . The stock proce has recently fallen below its book
value per share......
Our year end 1997 price target of $ 25.50 per share represents potential upside of
86% and it could be met sooner with a merger or acquisition. Netcom would make a
good acquisition target for companies like AOL, CompuServe or IBM. Specifically,
AOL, could use Netcom to keep its promise of 10 million subscribers by year end
1997 and solve it biggest problem: customer churn...
Sorry to drone on but I wanted to touch on all subjects. |
