BCST Valuation Model
fnews.yahoo.com
Morning Report
Tue Mar 23
Value Signals: Broadcast.com, Getting A Yippee From Yahoo?
By Steve Harmon
Senior Investment Analyst
Internet.com "Where Wall Street Meets The Web"
Reports say Yahoo may be in talks to acquire Broadcast.com
(NASDAQ:BCST - news), which sent shares soaring 37% yesterday for the
audio-video Web network and was cause for BCST shareholders to let out
a little "yahooo!" of their own. But what could BCST fetch if it's in
play?
For the longest time I've believed that Broadcast.com was and is in
the enviable position of being a next-generation portal. Just as the
first-gen portals emerged in the text-driven space it's always been a
mystery to me why only Broadcast.com has the mindshare and marketshare
dominance and not a handful of flavors.
The only significant player here in this space other than
Broadcast.com is RealNetworks (NASDAQ:RNWK - news) .
Unfortunately for Yahoo was the 37% jump in market cap for BCST on the
rumor, effectively creating a dilemma if indeed talks are underway.
That basically means the premium has been discounted into BCST as if
the deal is real.
But it also sets up BCST shareholders for another Lycos situation
where shares ran on deal fever and no premium was forthcoming above
the run when a real bid is announced. Shareholders want their cake and
want to smear it on the acquirer's face too.
My estimated valuation for Broadcast.com relies on two key assets
centered on people: the employees who have built it into the leading
audio-video portal and the users who number 8.9 million per month
according to MediaMetrix.
I'm not valuing it on a multiple of revenue or earnings yet since I
believe that hypergrowth could lead to a fully-digestible multiple of
both by the year 2001. Today's market sits more on core competency
that can scale as well as users that will up sell the earnings model.
Let's take a look at the abacus tweaking I've done:
Broadcast.com BCST
Shares out 34.2
Price 3/22 $116.50
Market cap $3,984.30
1998 revenue $22.40
4Q98 rev $7.60
Annualized $30.39
4Q98 loss $(5.18)
Annualized $(20.73)
Est. 99 rev $37.00
Est. 99 rev as part of Yahoo $45.00
Deal rev. multiple @ $4,000 88.9
4,250 94.4
Unique users 8.9
Value/user $447.67
Harmon's est.
Value/user $532.00
Implied mkt value $4,734.80
Yahoo value/user $1,063.79
@Home/Excite Bid per user $367.63
At same per… $3,271.88
**All figures in millions, except share price, multiple and value per
user
Broadcast.com's biggest moment in the sun Webcasting Victoria's
Secrets new lingerie lineup February 3 with 2 million users logging
in. Another big day came via Clinton's zippergate (combine the two and
imagine what a day it would have selling Monica's Secret!).
Viewer habits aside, the bread and butter of Broadcast.com is the
breadth of its broadcasting. Broadcast.com aggregates more than 385
programming feeds from radio and TV station and cable for use on the
Web and sports for over 420 college and pro teams, 2400 CDs on demand,
re than 500 audio books.
Revenue in 1998 was $22.4 million, small relative to Yahoo's $203
million. But keep in mind the 28.8 dial up experience that most Web
users had last year and the emerging broadband platform that
Broadcast.com is better suited for.
As such, I estimate BCST could generate $37 million revenue for 1999,
more if it was part of Yahoo's huge selling machine. That puts the
revenue multiple on BCST at more than 80x under its existing market
cap and a $4.7 billion takeout value that I place on the firm at $532
per user. That's half what Yahoo users trade for so in a way Yahoo
buys growth at 50% of its own value per user.
That valuation depends heavily on if Yahoo or multiple bidders emerge.
Or any. Natural born buyer to me is AOL first and foremost. I can't
see AOL's Bob Pittman and Ted Leonsis, both big believers in the Web
as 'better TV,' as letting Broadcast.com get away from them.
AOL can digest this one much easier than Yahoo with its market cap
leverage, capital and cash flow. Stay tuned for sure on this one. |
