Nice comments on DCLK in ..... Smart Money Interactive, March 31, 1999
Silicon Alley Darlings
By Joshua Albertson
ALL THAT SEPARATES the Internet's birthplace in Silicon Valley from its new vacation home in Silicon Alley is a few thousand miles and a lone "V."
But as the market floods with New York, new media, new money, one has to wonder, Does the "V" in Silicon Valley stand for "Value"? Because, after a healthy dose of frenzy, that's what seems to be missing in New York's premillennial Internet boom.
That's not to say that the Valley is the value investor's five-and-dime. But at least there are still the likes of Sun Microsystems (SUNW), which can be found on sale in the dot-com aisle for a measly 35 times calendar 2000 earnings estimates (even as the stock touches its all-time high). And there once was a time, way back in 1997, when Yahoo! (YHOO) traded hands for about $5 per share (split adjusted).
True to their New York upbringing, though, Silicon Alley Internet types have grown up fast. They've skipped the Woolworth stage and gone straight to Tiffany.
Take, for instance, iVillage (IVIL), the online network for women. If investor enthusiasm is the measure of cyberspace success, well, then iVillage with its "astrology.net" and "parent soup" pages is the mother of all Web sites.
The stock soared 234% from its $24 offering price to close at 80 1/8 on its first day of trading. In the eight days of market activity since, IVIL has gained another 20 3/8 points, or 25%. And as with many of its New York sisters, iVillage's underwriters had already boosted the company's offering price before the stock ever hit the market.
ZDNet (ZDZ), the tracking stock for Ziff-Davis's (ZD) online information services, enjoyed a similar debut on Wednesday. First, the stock's underwriters bumped the offering price from the $11 to $13 range to $19. Then, investors swooped in to lift the shares into the mid-30s. But ZDNet probably locked up its successful opening last year, when it managed to lose $9 million, or 13 cents per share. Earnings are such a drag.
Throw in last week's smashing coming out party of MiningCo.com (MINE), a search engine with a human touch (for better or worse), and it's
clear that there's no stigma attached to launching an Internet public offering from New York-based headquarters. But now that the cork has
popped, Is there any fizz left in these stocks?
Well, that depends on how big and strong the bubble is. As long as nothing bursts the Internet euphoria -- keep hitting those numbers America Online (AOL) -- these stocks, on the whole, are likely to climb. The better question is, Is there enough meat behind the business models?
What iVillage, MiningCo and ZDNet all share -- besides their penchant for losing money -- is a relatively high level of site traffic. In Media Metrix's latest ranking of digital properties, ZDNet came in 17th, with slightly more than eight million unique visitors in January; MiningCo garnered the 29th spot, with 4.7 million visitors; and iVillage, with its 3.6 million viewers, secured 35th place. Obviously, traffic and profit don't go hand in hand, but the three entities are bookmarked on enough PCs to be Web players.
ZDNet and iVillage have also targeted their content offerings to what analysts consider promising segments of the online community. ZDNet
caters to the growing legion of technophiles, while iVillage speaks to twenty-something to middle-aged women, a group whose buying power is
deemed especially appealing.
The focused content gives these sites leverage with advertisers. Whether it also translates into large chunks of e-commerce revenue could determine whether these sites win or lose.
Meanwhile, MiningCo, what with its "better than a search-engine" strategy, hopes to appeal to a broader audience. But it also segments its content into a variety of topics with the help of 600 "real people" guides. If the model works, the guides will develop online communities where visitors can chat, browse and buy.
Given the rate of consolidation in the sector, it's conceivable that MINE and IVIL are in the crosshairs of the Web giants. (ZDZ is still under the Ziff-Davis umbrella.) Their billion-dollar-plus market caps certainly make them less palatable than they were several weeks ago. But Yahoo wasn't afraid to offer $5 billion for community site GeoCities (GCTY) earlier this year, and acquisition currency is plentiful in this market.
Still, the new entrants have shown every indication of going it alone. And back in investment fantasyland, the Silicon Alley newbies can look to the great grandfather of New York Web concerns, DoubleClick (DCLK), for proof that there's life beyond the IPO. Already in its 14th month as a public entity (!), the graybeard has rewarded those who got in at the offering price with a nearly 1,000% return on their opening-day investment of $17 per share.
And even as the market capitalization soars toward $4 billion and the stock trades at 45 times trailing 12-month sales, analysts continue to
recommend buying shares. Seven of seven pundits who track the issue for Zacks rate DCLK a Buy or Strong Buy. Says Ken Winston of Needham & Co., "Valuation is tough on all these stocks, but this is a clear leader."
Winston admits that he has watched DoubleClick soar past all of his price targets and rendered most of his valuation metrics obsolete. But he certainly isn't alone. And if an analyst had slapped a $190 target on the issue last year, surely the cries of foul would have been deafening.
Overvalued or not, DoubleClick has developed into an enviable Web property. Revenue almost tripled to $80 million in 1998, and the company counts 1,300 Web sites among its banner ad customers. And DoubleClick continues to have success in raising money for future endeavors. Earlier this month, the company issued $200 million in convertible debt, and confirmed its plans to examine expansion through acquisition.
But the Internet's continuing evolution, coupled with stock's perilous height, still makes this issue unfit for widows and orphans. And that goes double for this new wave of Silicon Alley hopefuls. |
