AWEB - Kieth Benjamin Report
Subject:
Keith Benjamin's Weekly Web Report
Date:
Fri, 18 Jun 1999 09:55:34 -0500
From:
Keith Benjamin <Weekly_Web_Report_Recipients@um7.revnetexpress.net>
To:
Weekly Web Report Recipients <Weekly_Web_Report_Recipients@um7.revnetexpress.net>
BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
mailto:Keith@rsco.com
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June 18, 1999
The Web Report – Volume 2, Issue #24
This week, the NETDEX index fell 1.8% from last week to 555.91. For
comparison, the NASDAQ ended the week up 2.4% from last week.
THE JET IS BACK ON THE RUNWAY AND THE ENGINES HAVE STARTED - After two
hard weeks of failing to find the bottom, we are greatly encouraged by
this week's rebound. We had underestimated the negative influence on
Internet stocks of the overall market decline on interest rate
concerns. In a more stable tape, we expect the stocks will continue
upwards through anticipated positive surprises for reporting season.
The only excuse we've heard for investors hesitating to plunge back into
Internet stocks is a fear that the summer may somehow dampen activity.
This concern is misplaced, in our view. First, actual company seasonal
traffic patterns are factored into our estimates. Second, commerce
activity appears to be accelerating despite the tendency to spend a bit
more time outside than indoors during the summer. Third, we would agree
that there will be even more room to beat estimates in the September and
December quarters. As such, we would expect our recommended stocks may
not move past previous highs until the next reporting season. That
still leaves room for a substantial rebound in the 25% to 50% range from
current depressed levels. We expect the buying frenzy will again be a
sharp as the selling panic. After this reporting season, we expect
those companies that report faster than average growth will hold on to
these gains and not return to these lows, held up by anticipation of the
seasonally stronger second half.
FOCUS STOCKS – After the recent correction, we have broadened the list
of stocks we would recommend purchasing now. Our favorite stocks
include Amazon, AOL, CMGI, CNET, Digital River, eBay, Excite @ Home,
InfoSpace, Lycos, Mapquest, Modem Media Poppe Tyson, Multex.com,
NetGravity, Net Perceptions, Priceline, SportsLine, TicketMaster
CitySearch, and Value America.
SUMMER SEASONALITY – We have heard concerns about Web usage slowing
slightly in May, according to survey data expected to be reported by
Media Metrix next Monday. This is seasonally normal as we spend more
time outdoors. For reference, last year, estimated unique users were
flat between April and May, with time spent per person at work and home
down slightly. Even in seasonally stronger months, changes in the
aggregate community have been modest on a month-to-month basis. For
reference from April 1998 to April 1999, estimated unique users grew
13.4% from 53.9 million to 61.1 million, with average time spent up
40.7% from 5.3 hours per month to 7.5 hours. It is critical to remember
that Internet economic models are driven more by how many things people
buy online than how many minutes they spend online. The pace of
purchases seems to be growing faster on the increasing awareness of the
convenience of Web shopping. As evidence, Amazon.com announced its
customer base has grown to over 10 million, up from approximately 8
million at the end of March. As such, we expect strong results to be
reported by most companies for the June quarter.
CMGI: We recently upgraded CMGI from a Long-Term Attractive to a Buy,
reflecting our belief that the stock looks attractive relative to its
possible future asset value. We estimate CMGI's current asset value is,
conservatively, around $38. Our “optimistic” estimate assumes that
nearly every company in the portfolio goes public, suggesting a $150
target. With the stock price now in this range, we are more
enthusiastic, especially as we are able to gain visibility on short-term
catalysts, which we expect could be large investments or acquisitions.
The company announced that in addition to raising a fourth venture fund
to begin in 2000, @Venture IV, it will also raise a late stage crossover
fund, called @Venture Late Stage Crossover. We believe both of these
funds could be 2 to 4 times the size of @Venture III, or as big as $1
billion each. CMGI's value starts with the connections and investment
savvy of its management team. As the Internet stock group becomes
bigger and more confusing, we believe more investors, both individuals
and institutions will appreciate having CMGI's effectively create a
leading Internet investment vehicle. We believe the stock will be in
the first group of stocks to recover. Further, two subsidiaries should
be on IPO road shows in the coming weeks, which we expect could be
catalysts for the stock.
EXCITE @ HOME: We re-initiated coverage on Excite @Home with a Buy
rating after the merger between Excite and @Home. We believe Excite
@Home is in a powerful position with the leading broadband Internet
service. Excite @Home has strategic relationships with 22 cable service
providers in North America and internationally. These cable companies
currently pass roughly 60% of cable households. We believe @Home boasts
technology advantages for broadband access. We believe rollout of the
@Home service is supply constrained as cable operators struggle to find
enough trucks to drive out and connect enough households. With more
plug-and-play cable modems installed in new PCs over the next year or
so, subscriber growth should accelerate, aided by new Excite content and
cross-selling efforts with existing Excite registered users. On a
market value per subscriber basis, Excite @Home stock looks expensive
based on current subscribers, at over $37,000 per subscriber, relative
to AOL at approximately $6,000 and cable operators at roughly $5,000.
For reference, Excite @Home is valued at only $2,480 per 2002
subscriber, and should grow the subscriber base faster than the other
companies. We expect the stock could remain sensitive to shifts in
perception regarding the competitive position relative to AOL and
others. Over the next few quarters, we believe the stock will move with
the top tier of stocks as it is remains a proxy for growth of broadband
access. We will look for positive surprises by next year in subscriber
growth as the key incremental catalyst for the stock.
eTailing Update – Lauren Cooks Levitan 415-693-3309
mailto:lauren@rsco.com
eTOYS – eTAILING'S FIRST TRUE CATEGORY KILLER – We initiated research
coverage of eToys this week with a Buy rating. We believe eToys has
emerged as eTailing's first true category killer, addressing a combined
$100 billion market opportunity for products for children and babies.
In our opinion, the company has successfully exploited the online
distribution channel to capitalize on the often inconvenient and
unpleasant toy shopping experience with impressive front-end product
search and back-end fulfillment capabilities that have set the standard
for other eTailers. We believe eToys' first mover advantages, strong
vendor relationships, and well-developed fulfillment capabilities should
support successful extension of the eToys brand into other related
children's categories and geographic markets. The company recently
launched its baby store and we expect future announcements of new
categories could positively affect the stock. While we expect the
company will be faced with substantially increased competition during
the 1999 holiday selling season, we expect eToys will remain the leader
in this growing online category given their proven ability to address
the operational complexity of this business.
eBAY – REACHING THE NEXT LEVEL OF TECHNOLOGY AND SCALABILITY - In
response to 22 total hours of Web site downtime, eBay announced it will
refund between $3 and $5 million in fees to customers holding auctions
between June 9th and June 11th. We view the company's action as a
proactive response intended to maintain its historically high customer
satisfaction. We liken eBay's growing pains to the scaling difficulties
AOL experienced back in 1996. We understand eBay has been building a
mirror site that can reduce site downtime to around 40 minutes, however
last week's outage came just weeks before the backup system was planned
to go live. In our view, the company has the infrastructure and
personnel in place to build its capacity and backup systems to
facilitate auctions for tens of millions of customers. We believe that
by getting beyond this technological hurdle, eBay appears to have moved
ahead of its potential competition. We are optimistic about user
trends, with new auctions listings and the number of new users returning
to previous weekend levels after the site was back up and running. In
our view, eBay's outage served as a healthy reminder to investors that
eTailing is challenging business where few companies will be able to
maintain these unprecedented growth rates.
AMAZON – INVESTING IN HIGH-END AUCTIONS - Amazon.com announced this week
it is investing $45 million for an approximately 2.5% stake in auction
house Sotheby's. Together the companies plan to launch a joint online
auction site, sothebys.amazon.com. We are not surprised by Amazon's move
into high-end auctions and believe they could not have picked a better
real-world partner in Sotheby's. In our opinion, Amazon's strong brand
awareness with online shoppers and the Sotheby's name could be a
powerful combination in the online auction market. We believe one of
the biggest obstacles facing online auctioneers is authentication of
genuine products and suspect counterfeiting of antiques and collectibles
is wide-spread, such that we believe it is crucial for auctioneers to
provide an authoritative voice to ensure consumer confidence. Given the
critical role that brand and expertise play in generating consumer
confidence and the relative scarcity of antique and collectible
authenticators, we believe the online auction market for high-end
products could have bigger barriers to entry than other auction
categories. As a result, we feel the players in this market could
benefit from minimal price competition and with this investment, Amazon
has propelled itself into the lead pack of franchise auction eTailers.
ALLOY ONLINE – TEEN eTAILER PRODUCES SOLID RESULTS – Teen eTailing
community Alloy Online announced Q1 revenues of $2.55 million, well
above our estimate of $1.9 million on better-than-expected user growth.
EPS loss also beat our expectations given solid gross margin of 51.1%,
at the high end of margins achieved by eTailers we follow. We believe
Alloy's strong first quarter as a public company provides evidence that
the company's Gen Y niche-focused business model opens up several
opportunities for high-margin sponsorship revenues, which were $162,000
in Q1, significantly above our estimate. In our opinion, traditional
consumer products and media companies are just beginning to market their
products to the Web-savvy and hip Gen Y consumer segment. We believe
Alloy's direct relationship with members of this difficult to reach
consumer group is highly attractive to marketers and strongly positions
Alloy to capture share of online advertising dollars. We suspect
announcements of these types of deals could drive the stock back to
previous highs and beyond.
AUTOWEB.COM SIGNS MULTI-YEAR YAHOO! DEAL – Autoweb bolstered its online
presence this week by becoming the premier non-manufacturer auto
merchant with fixed placement in all automotive pages of Yahoo!. Under
the terms of the agreement, Yahoo! will deliver approximately 2.5
billion impressions to Autoweb.com. In our opinion, Autoweb's business
model is such that the company should benefit tremendously from this
Yahoo! deal. Specifically, because Autoweb generates revenue for each
qualified lead it sends to a member-dealer, we believe Yahoo!'s high
traffic volume could drive significant lead growth for Autoweb.
QUICK eTAILING UPDATES –We continue to see more existing retailers more
aggressively invest in new e-tailing operations. Global Sports
Interactive, the company that will soon operate the online businesses
for six major sporting goods retailers including The Sports Authority,
received an $80 million investment from Softbank Corp. for a 30% stake
in the company. Global Sports also announced that it will be divesting
its non-internet retailing activities, thus positioning itself
completely behind internet retailing when it launches its Web site in
the fourth quarter. We believe this double infusion of capital, coupled
with the estimated $135 million in advertising already being spent by
the retailers associated with Global Sports, should allow the company to
make a big impact on the online sporting goods market when its
affiliated sites launch later this year.
More activity continued in the very busy online drugstore arena, as
consumer healthcare network Drkoop.com announced that it would be
offering over 20,000 drug and healthcare products for sale online
through Drug Emporium's online drugstore. An integrated site between
drkoop.com and DrugEmporium.com will launch in August. In related news,
MIM Corp. announced that it will become the exclusive provider of
prescription drugs and certain home medical products, while also
providing over-the-counter products and health and beauty merchandise,
to Value America Inc.
CompUSA jumped on the online auction bandwagon, launching a site that
allows customers to bid on CompUSA clearance items including returns,
closeouts, discontinued products and refurbished merchandise. Later in
the week, CompUSA's chief executive hinted at the possibility of
spinning off CompUSANet.com and taking it public.
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Rating 6/17 6/10 1-Wk 52-Wk Chg
Chg High 52Wk Hi
6/10 - to 6/17
6/17 Price
Amazon AMZN SBUY 113 116 -3% 221 1/4 -49.0%
America Online AOL SBUY 110 2/3 105 1/2 5% 175 1/2 -36.9%
AutoWeb AWEB BUY 12 1/2 13 1/4 -6% 50 -75.0%
Beyond.com BYND BUY 21 5/8 23 1/3 -7% 41 1/3 -47.7%
CareerBuilder CBDR BUY 11 1/4 11 1/8 1% 20 -43.8%
CDnow CDNW MP 15 4/5 17 4/9 -9% 39 1/4 -59.7%
CMGI CMGI LTA 96 1/2 101 1/2 -5% 165 -41.5%
CNET CNET BUY 49 3/8 49 7/8 -1% 79 3/4 -38.1%
Digital River DRIV BUY 23 3/4 23 1/2 1% 61 3/8 -61.3%
DoubleClick DCLK BUY 87 7/8 93 2/3 -6% 176 -50.1%
Ebay EBAY BUY 146 3/4 182 2/3 -20% 234 -37.3%
Egghead EGGS BUY 10 1/4 10 7/8 -6% 40 1/4 -74.5%
eToys ETYS BUY 40 51 5/8 -23% 85 -52.9%
E*Trade EGRP BUY 34 3/4 39 1/2 -12% 72 1/4 -51.9%
Excite@Home ATHM NR 51 1/3 92 7/8 -45% 99 -48.2%
Gemstar GMST SBUY 55 5/8 60 -7% 67 5/8 -17.7%
Getty GETY BUY 20 22 -9% 30 1/2 -34.4%
InfoSpace.com INSP BUY 45 50 1/5 -10% 72 5/8 -38.0%
Lycos LCOS BUY 89 1/2 90 -1% 145 3/8 -38.4%
Modem Media
Poppe Tyson MMPT BUY 26 3/8 27 1/2 -4% 55 1/8 -52.1%
Multex.com MLTX BUY 28 32 4/9 -14% 71 1/2 -60.9%
Mapquest.com MQST BUY 13 3/4 15 3/4 -13% 35 5/9 -61.3%
Media Metrix MMXI BUY 38 3/4 43 7/8 -12% 56 5/8 -31.6%
NetGravity NETG BUY 18 3/4 21 1/3 -12% 66 7/8 -72.0%
NetPerceptions NETP BUY 17 1/2 20 1/5 -13% 35 -50.0%
Network Sols NSOL BUY 70 2/3 66 1/4 7% 153 3/4 -54.0%
NewsEdge NEWZ MP 7 7/8 8 2% 14 1/4 -44.7%
Onsale ONSL BUY 18 16 4/7 9% 108 -83.3%
Priceline.com PCLN SBUY 89 102 1/4 -13% 165 -46.1%
Preview Travel PTVL BUY 15 2/3 17 -8% 44 -64.3%
Infoseek SEEK MP 47 4/9 47 1% 100 -52.6%
SportsLine USA SPLN BUY 34 5/8 36 -4% 59 1/4 -41.6%
TicketMaster Online
CitySearch TMCS BUY 22 1/2 26 1/8 -14% 80 1/2 -72.0%
Value America VUSA BUY 18 1/2 22 1/2 -18% 74 1/4 -75.1%
Xoom.com XMCM BUY 48 3/8 50 -3% 98 1/2 -50.9%
Yahoo! YHOO BUY 142 1/4 144 3/4 -2% 244 -41.7%
NETDEX Index
NETDEX 555.91 566.25 -1.8% 801.41 -30.6%
KEBDEX Index
KEBDEX 870.99 890.85 -2.2% 1,273.17 -31.6%
NASDAQ Composite Index
COMQ 2,544.15 2,484.62 2.4% N/A N/A
(1) Change based on last 12-month's
performance.
Source: AT Financial Information and BRS Estimates
BancBoston Robertson Stephens maintains a market in the shares of Alloy
Online, Amazon.com, CareerBuilder, CMG, CNET, Preview Travel, Digital
River, DoubleClick, eBay, Egghead.com, E*Trade, eToys, Excite, Gemstar,
Getty, Infoseek, InfoSpace.com, Lycos, Mapquest, Media Metrix, Microsoft
Corporation, Modem Media, NetGravity, Network Solutions, Net
Perceptions, NewsEdge, N2K, ONSALE, Preview Travel, Priceline.com,
SportsLine, TicketMaster Online-CitySearch, Xoom.com and Yahoo! and has
been a managing or comanaging underwriter or has privately placed
securities of Alloy Online, CareerBuilder, Digital River, eBay,
Egghead.com, E*Trade, eToys, Excite, InfoSpace.com, Mapquest, Media
Metrix, Modem Media, NetGravity, Net Perceptions, ONSALE, Preview
Travel, Priceline.com, TicketMaster Online-CitySearch, Xoom.com and
SportsLine within the past three years.
For additional information, call your BancBoston Robertson Stephens
representative at (415) 781-9700.
Rating Definitions: The following are basic definitions for our
recommendation ratings.
Strong Buy – Rating for a stock, which we believe could have
significant, positive price movement near-term and/or represents
outstanding competitive and business model potential. Therefore, we
would be aggressive buyers of the stock.
Buy – Rating for a stock, which we recommend buying, however believe
there may not be near-term news or events to move the stock price.
Long-Term Attractive – Rating for a stock, which we believe could have
long-term value, however we would not necessarily recommend buying.
Market Performer – Rating for a stock, which we believe will perform at,
or below, market levels.
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Unless otherwise noted, prices are as of the close June 17, 1999.
FOR ADDITIONAL INFORMATION, PLEASE CALL YOUR BANCBOSTON ROBERTSON
STEPHENS REPRESENTATIVE AT (415) 781-9700.
The information contained herein is not a complete analysis of every
material fact respecting any company, industry or security. Although
opinions and estimates expressed herein reflect the current judgment of
BancBoston Robertson Stephens, the information upon which such opinions
and estimates are based is not necessarily updated on a regular basis;
when it is, the date of the change in estimate will be noted. In
addition, opinions and estimates are subject to change without notice.
This Report contains forward-looking statements, which involve risks and
uncertainties. Actual results may differ significantly from the results
described in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in
"Investment Risks." BancBoston Robertson Stephens from time to time
performs corporate finance or other services for some companies
described herein and may occasionally possess material, nonpublic
information regarding such companies. This information is not used in
the preparation of the opinions and estimates herein. While the
information contained in this Report and the opinions contained herein
are based on sources believed to be reliable, BancBoston Robertson
Stephens has not independently verified the facts, assumptions and
estimates contained in this Report. Accordingly, no representation or
warranty, express or implied, is made as to, and no reliance should be
placed on, the fairness, accuracy, completeness or correctness of the
information and opinions contained in this Report. BancBoston Robertson
Stephens, its managing directors, its affiliates, and/or its employees
may have an interest in the securities of the issue(s) described and may
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Copyright * 1999 BancBoston Robertson Stephens Inc. |
