OK, this is getting silly. What is the point of, "I think it'll go up." "No, I think it'll go down."
Let's hear some logical reasons. Why is GNET over or under valued. Here comes my take on: WHY GNET is undervalued.
Obviously there are a lot of factors to account for. The first is internet growth in general. Right now 25% of people in the US are connected, ie have the ability to go on line if they want. This doesn't mean they actually do. Most of them use the web much less now than they will in three years. What will draw them in? Stock info, good dealks on banking, loans, tickets, curiosity, hype, etc. So on the surface, you can say the US market can only grow 4 fold, (25% market penetration) but it can actually increase much more as usage per person increases. Foreign usage has a lot more growth left, but I don't know how much that'll affect GNET.
As far as what the analysts think, advertising revenue growth will slow, but ecommerce growth will continue to explode. Now when I say ad revenues will slow, I mean to 50% a year, which is still pretty fast. But investors looking for continued 200% revenue growth (avg for web companies) from ads are bound to be dissapointed. (that is if you believe the analysts, which I don't necessarily, but for the sake of argument......) At any rate, I think that as the easy money in ad revs goes away, the companies who will end up with the lion's share are 1) the huge volume guys that can't be ignored, ie Yahoo, AOL, and 2) people who can offer highly targeted advertising.
I think GNET can offer targeted ads. SI is considered the most "sophisticated" online investing community. This is where the big money hangs out. Playsite can offer ads targeted to gamers. Hypermart can target small businesses and individual categories (ie a computer store can offer its ads only on pages of tech companies.)
So I think they will be able to continue bringing in ad revenues.
But I think that in five years ad revs will only be a fraction of total GNET revenues. Why? Subscriptions and commerce.
Let's look at subscriptions first. I have no idea how many users SI has. I have heard that they are dropping the lifetime membership offer. This is a good idea because of the sustained revenue. So it becomes an issue of # of users * $120 a year. If they can add 10,000 users over the next couple years, that's 1.2M a year. If they add 100,000 users (probably more accurate) that's 12M a year. If 1% of the 100,000 subscribers add IQC, that's another $300,000 a year. If 10% add that's 3M a year.
Now let's look at hypermart + VirtualAve. I think they can easily have 1M users by the end of 2000 (hypermart currently has 204,677 plus ~90,000 for VAve. They're currently adding 1000 per day. This should only increase.) Premium services are currently going for $79 bucks/yr. (This will go up) It seems a lot of people would want premium services, since if you're selling books, you don't want an AMZN add on your site. If 1% of businesses take the premium, that's $800,000/yr. 10% is 8M/yr.
So 2001 total subscription rev should be AT LEAST 5M (I think my #'s here are EXTREMELY conservative in terms of penetrance) but could be up to 25M (or higher).
Now Commerce.
Here you have to look at Hypermart. I'll use my estimate of 1M businesses. If 1% of h-mart users sign up for the eCommerce solution (not yet launched) and do $1000/month in commerce, and if H-mart skims 1% of that off the top, that's 1.2M/yr. If 10% do that's 12M/yr.
If 10% also use Haggle (one of the most interesting things to watch will be whether their "captive audience" from H-mart will allow them to build enough volume to compete in the auction game.) and GNET takes 1% we can maybe double that. Let's say 20M total commerce revs from H-mart between eCommerce solution and Haggle.
Then you add in the upcoming GNET store (I have no idea what they'll be selling, but hell, let's give'em 10M)
Anyway, I'm predicting total subscrip + commerce revenues to be, oh....40M in 2001, minimally. (but for safety, it'll probably be between 20M and 200M) I'm gonna say ad revs will double on avg, so I'm guessing last 12 months have been 7M, so 2001 will be about 56M. So, minimally, I'm looking at 100M 2001 revs. Ya figure 20% margins, that's 20M in earnings. That gives them a 100 PE for existing properties in 2001.
Finally, you have to consider their aquisition startegy. Recently, they have bought Virtual Ave, giving them 90,000 small business hosts, Haggle.com, USAOL business directory, and IQC.com for a total of about 50M in stock, which amounts to a total share dilution of about 2.5%. I think that constitutes a lot of quality for minimal share dilution due to the height of their stock price. This is one of the great ironies of Internet stocks. Their skyrocketing prices make them cheaper, in a sense, because it allows them to make cheap aquisitions.
So, i think that their aquisition strategy makes all the difference. If you assume that will allow them to make double my prediction that leaves them with a PE of 50 in 2001. For a stock growing at this rate that is dirt cheap in 2001 and not bad now.
Finally, I think my predictions are on the low side, so you could see double my predictions.
So, what should GNET buy? I'd like to see them add more fundamental data to SI/StockSite/IQC. Stuff like SEC data, maybe FreeEdgar. That would give them the full circle on research: Chat, technical (IQC, and fundamental. Next they could move to mortgages, insurance, and taxes, etc, to become a true financial portal.
Also, I think a promising area is music. MP3 has caught on big and there are soime quality music sites like MP3.com, UBL, and spinner.com that haven't gone public and would be a coup.
Comments, criticisms, suggestions? Let's get some debate on actual potential. |
