BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
mailto:Keith@rsco.com
Unsubscribe to: mailto:rsch_webmaster@rsco.com
July 2, 1999
The Web Report - Volume 2, Issue #25
This week, the NETDEX index rose 8.9% from last week to
614.99. For comparison, the NASDAQ ended the week up 6.0%
from last week.
SUMMER STRENGTH - We are relieved and encouraged by signs of
selected strength in some of our favored Internet stocks.
With reporting season kicking off next Wednesday when Yahoo!
reports, we expect evidence of improving fundamentals and
further stock progress. We don't expect many new highs will
be reached, with investors holding back in fear of a slow
August. With less volatility, we do not expect to see many
stocks return back to recent lows either. As such, we
remain focused on stocks that have not recovered as much and
should benefit from reports. These include recent IPOs,
like Mapquest, and a few more seasoned stocks lost in the
shuffle of so many deals, like Lycos and TicketMaster
Online-CitySearch.
INTERNET ADVERTISING STEPPING UP TO NEW LEVELS - Valuation
levels may distract some from the rising levels of revenues
being derived from advertising and direct marketing. This
week, Procter & Gamble and Bank One announced deals to spend
more money to reach customers online. We believe these
deals provide a solid sign that fundamental trends are
improving for the group.
Procter & Gamble announced it plans to significantly
increase its Web advertising spending, starting with Yahoo!
Its spending had been just $12 million of its total
advertising budget of $3.7 billion last year. We don't know
the new number, but suspect it is multiple times higher.
P&G brands will now be heavily integrated into various
Yahoo! channels. We believe this provides an indication of
the value of Web advertising to help build brands for
products purchased offline. Maybe gentle reminders about
the Pringles will make you more likely to grab a can next
time you're in the store.
Of course, direct marketing of products that can be
purchased online continues to attract more merchant activity
trying to attract new consumers. Continuing consumer
response is fueling higher prices paid to reach audiences.
This week, Lycos announced an agreement with Wingspan
Bank.com, the online unit of Bank One Corporation, to allow
Lycos' users to conduct financial transactions online. We
expect the deal to generate at least $135 million in
revenues to Lycos over the next five years. With over 30
million unique users, this suggests a value of $4.50 per
user. We believe Lycos' stock is still suffering from
confusion over whether it will be acquired, without enough
focus on its ability to make its own acquisitions and soon
post profitability, with the help of deals like this.
GIVING AWAY THE PC TO LOCK UP A CUSTOMER - AOL and Prodigy
have succumbed to the trend of offering cheaper (even free)
PCs in order to drive mass market Internet acceptance.
Starting this weekend and lasting through July, those who
sign up for three years of unlimited access through AOL's
CompuServe unit will receive a free PC. AOL will actually
rebate customers $400, once they purchase a low-cost PC from
a pre-selected manufacturer. While this may seem expensive
on the surface, we expect future rebates to be smaller.
Even then, AOL can justify paying more than its long-term
average marketing cost of about $100 per net customer,
because of the effective elimination of churn, which we
estimate is running around or under approximately 10% per
year. The revenues for three years of unlimited access
works out to be approximately $800 for the consumer.
Prodigy also plans to offer a $400 rebate to customers who
sign up for three years of its service, and who purchase PCs
from Best Buy. Roughly a dozen PC companies are emerging to
offer cheap, or free PCs in exchange for bounties from
access providers. Of course, the consumer still has to pay
the full price for access. We believe AOL will be able to
maintain its majority share of these bundled deals, given
its strong brand. We expect this trend will hurt PC
manufacturers, but benefit most Web content and commerce
companies, as more people can afford Web access.
CMGI MAKES BIG MOVE - CMGI announced plans to buy 83% of
Alta Vista for $2.3 billion in CMGI stock, valuing Alta
Vista at $2.7 billion. We estimate Alta Vista generates
more revenue than Lycos, which has a market value of $4.7
billion, suggesting a reasonable price for Alta Vista.
Management believes the acquisition of Alta Vista will help
crystallize CMGI's Internet group of affiliates, leveraging
a top-10 Web property with several smaller Web sites and
services. CMGI aims to make Alta Vista more valuable by
building its commerce backlog and adding community services.
It appears logical that CMGI could make more modest
acquisitions and consolidate them into a new Alta Vista for
a potential future IPO. CMGI may also work effectively with
Compaq to promote a commerce-enabled Alta Vista to
individual PC buyers and the host of CMGI business service
companies to Compaq's enterprise clients. We estimate that
CMGI's asset value is at least $38 per share. If we take an
optimistic stance regarding the IPO prospects for each of
the more than 30 investments, we estimate the asset value at
$150.
LOCAL COMMERCE LEADER WITH LAGGING STOCK - TicketMaster
Online-CitySearch - There are a few stocks that stand out as
ripe for positive attention over the next few weeks, by our
analysis. We believe TMCS is now the prime beneficiary of
increasing commerce at the local level, with more stores
joining the CitySearch network to reach its audience and
with more people visiting for tickets and more. Maybe the
name is too long. Regardless, TMCS appears to be
experiencing accelerating growth while its stock price has
been lagging. We believe our estimates for both ticket
sales and CityGuide revenues are significantly low. TMCS
recently redesigned its ticket-purchasing interface to speed
up transaction times and recently launched CitySearch
eCommerce, a storefront service that enables small
businesses to sell products and services directly through
their CitySearch micro-sites, enabling more revenues per
customer than from just yellow-pages-like pages. The net
result of the merger attempt was a major distribution
agreement with Lycos. We expect more deals and acquisitions
will follow. It announced an expanded relationship with
American Express last week, which will help market
CityGuides to small and medium size businesses. TMCS
recently acquired a leading online dating site and
CityAuction.com. The company is scheduled to report June
quarter results the week of July 19th.
DIGITAL RIVER: Here's a company demonstrating the leverage
of its outsourcing technology to Web-enable more software
publishers/retailers and now new businesses. Also, it has a
cool name. CommerceBridge seamlessly integrated solution
for sales and fulfillment of products over the Internet.
Digital River provides these types of partners with various
services, including Web store hosting, transaction
processing, security, order processing, data center
management, fraud prevention, order tracking, online
reporting, customer and distribution fulfillment management,
marketing and merchandising support, and customer service
support. This week, Digital River announced an alliance
with Sega of America, to provide an integrated end-to-end
commerce solution for Sega's online store. Digital River
will provide Web store hosting, shopping basket
functionality, order processing, transaction management, and
customer service.
SPORTSLINE MAKING THE RIGHT MOVES IN EUROPE - SportsLine's
European subsidiary acquired Infosis Group's Sports
Division, a leading provider of sports content to leading
online and off-line media companies in the U.K. and rest of
Europe. Infosis provides real-time scores, statistics,
match reports and features. SportsLine Europe acquired the
division for 1.5 million pounds sterling in cash.
SportsLine had already been using Infosis Sport's content
over the last year on its worldwide site. SportsLine
Europe's initial Web site, UK SportsLine, is scheduled to
launch this summer. We believe this acquisition will help
the new subsidiary expand its content offerings and further
its lead as the preeminent European online sports entity.
eTailing Update - Lauren Cooks Levitan 415-693-3309
mailto:lauren@rsco.com
The eTailDEX tracks the performance of the stocks of 24
online retailers with an aggregate market capitalization of
$67.4 billion. This week the eTailDEX increased 6.1% to
1,245.03 versus 1,173.95 last week. Despite this move, the
index is down roughly 30% from its 52-week high.
EBAY'S OUTAGE WOES - AOL DÉJÀ VU? - This week eBay
experienced some minor downtime problems following the major
site outage that occurred earlier in June. While we
continue to believe that the worst of eBay's outage problems
are behind it, we acknowledge that the potential for
near-term price volatility remains high, should minor
downtime episodes occur as the company works to complete its
planned backup system. eBay's current predicament is
reminiscent of AOL's experience in late 1996 and early 1997,
when the company's modem capacity could not handle the
increased traffic following the institution of flat-rate
pricing. While many investors abandoned it, the majority of
AOL's customers did not. We believe eBay's customers, while
justifiably upset by recent outages, face switching costs
similar to changing email addresses. Sellers remain
reluctant to abandon their eBay feedback ratings. The
current level of listed auctions suggests that most of
eBay's customers are sticking with them. In fact, we expect
the company should report new customer growth during Q2 at
least in line with our estimated 494,000 new users.
WAL-MART FINALLY ONLINE - DO WE CARE? - While Wal-Mart is
formidable offline, we wonder how successful it can be
online. We find it curious that its latest move involves
outsourcing, given all the fear of its powerful
merchandising capabilities. Wal-Mart formed a strategic
alliance with Books-A-Million, in which Books-A-Million will
be the exclusive book provider to Wal-Mart's Web site.
Books-A-Million will also provide all related fulfillment
services. We expect additional partnerships will be
announced in the coming weeks and months. We feel strongly
that Amazon has a lead that even Wal-Mart's customer base,
brand and money will have a difficult time catching. Of
course, we believe there will be room for many competitors
online.
STARBUCKS.COM - REACHING WEB CUSTOMERS - Do Web surfers need
more coffee? Would you go to the Starbucks.com site? The
plan, unveiled this week, is to create a "lifestyle portal",
partnering with Talk City and Oxygen Media for community and
content. The site will also sell gourmet food, kitchen
products and home furnishings. We are intrigued that
Starbucks is taking a more aggressive approach than just
printing URLs on bags and receipts. Still, we wonder
whether or not to take this seriously. Any stock reaction
was muted by bad news regarding core business trends, as we
see it.
HOME DEPOT POSITIONED TO SUCCEED ONLINE - The Home Depot
unveiled its improved Web site this week, illustrating how a
company that has built its reputation on in-store customer
service can leverage its expertise to expand that experience
online. The new site includes a plethora of features
including step-by-step advice for over 100 projects, a
calculator to estimate the amounts of materials needed for
common home improvement projects, and a community that
online users join to become part of the "Home Team." The
company plans to begin online retailing in September or
October, with a site dedicated to professionals to be
included later. We believe Home Depot's approach to
eCommerce is an intelligent complement to its traditional
business, because it is designed to empower the
do-it-yourself customer while simultaneously offering
extensive support. Its 822-store base can be leveraged for
deliveries and returns, while its existing advertising
budget and unparalleled brand image minimize the need for
additional marketing expenses. Online customers will have
email, a toll-free number and a mailing address at their
disposal to have questions answered by a live person if they
so desire. We have long held that in certain categories,
including the $100 billion home improvement market, leading
incumbent retailers hold dramatic advantages online versus
upstart eTailers. Potential online competitors to Home
Depot will have difficulty overcoming the company's
formidable buying power and direct vendor relationships,
existing local delivery and distribution capabilities,
sparkling brand and customer service image and, now, its new
site's impressive user interface.
REGISTER NOW: To automatically receive the Weekly Web
Report via email, please register at www.internetstocks.com.
UNSUBSCRIBE: If you are a registered user of our website,
www.internetstocks.com, and would like to remove yourself
from the mailing list for this report, please follow the
link to the Weekly Web Report and click the "unsubscribe"
button. If you are not a registered user, please reply to
mailto:rsch_webmaster@rsco.com with the message "unsubscribe" in
the subject box.
Ticker Rating 7/1 6/25 1-Wk 52-Wk %Chg
Price Price Chg High 52-wk High
6/25-7/1 7/1 Price
ALOY BUY $11 $11 0% $23 1/6 -52.8%
AMZN SBUY $122 3/8 $113 5/8 8% $221 1/4 -44.7%
AOL SBUY $112 1/8 $106 3/4 5% $175 1/2 -36.1%
AWEB BUY $14 2/3 $11 7/8 24% $50 -70.6%
BYND BUY $27 1/8 $27 4/5 -2% $41 1/3 -34.3%
CBDR BUY $14 1/8 $13 9% $20 -29.4%
CDNW MP $18 $17 4/5 1% $39 1/4 -54.3%
CMGI NR* $112 $96 1/2 16% $165 -32.1%
CNET BUY $51 3/4 $50 4% $79 3/4 -35.1%
DRIV BUY $32 $26 7/8 19% $61 3/8 -48.0%
DCLK BUY $92 $81 2/3 13% $176 -47.7%
EBAY BUY $149 2/3 $142 1/8 5% $234 -36.0%
EGGS BUY $12 $10 3/4 12% $40 1/4 -70.0%
ETYS BUY $41 2/3 $39 7% $85 -51.0%
ATHM BUY $55 $53 4% $99 -44.5%
GMST SBUY $65 3/8 $58 2/3 11% $67 5/8 -3.3%
GETY BUY $17 5/8 $19 1/4 -8% $30 1/2 -42.2%
INSP BUY $48 $44 1/2 8% $72 5/8 -34.0%
LCOS BUY $102 3/8 $95 4/9 7% $145 3/8 -29.6%
MQST BUY $17 $16 1/8 5% $35 5/9 -52.2%
MMXI BUY $48 3/4 $39 3/4 23% $56 5/8 -13.9%
MMPT BUY $22 3/8 $24 1/2 -9% $55 1/8 -59.4%
MLTX BUY $26 $24 2/3 6% $71 1/2 -63.5%
NETG BUY $21 3/4 $18 3/8 18% $66 7/8 -67.5%
NETP BUY $21 1/2 $17 1/8 26% $35 -38.6%
NSOL BUY $80 1/2 $74 9% $153 3/4 -47.6%
NEWZ MP $ 8 3/8 $ 7 7/8 6% $14 1/4 -41.2%
ONSL BUY $18 5/8 $18 1/8 3% $108 -82.8%
PCLN SBUY $107 1/2 $102 5% $165 -34.8%
PTVL BUY $22 $20 4/9 7% $44 -50.1%
SEEK MP $50 3/8 $46 1/5 9% $100 -49.6%
SPLN BUY $33 5/8 $32 1/3 4% $59 1/4 -43.2%
STRM BUY $49 5/8 $49 5/8 0% $66 -24.8%
TMCS BUY $29 $23 26% $80 1/2 -64.1%
UBET BUY $11 1/8 $12 4/7 -11% $17 7/8 -37.7%
VUSA BUY $18 $20 1/8 -11% $74 1/4 -75.8%
XMCM BUY $52 4/9 $47 3/8 11% $98 1/2 -46.8%
YHOO BUY $177 1/4 $151 17% $244 -27.4%
NETDEX 614.99 564.93 8.9% 801.41 -23.3%
KEBDEX 937.19 871.40 7.5% 1,273.17 -26.4%
NASDAQ COMQ 2,706.18 2,553.99 6.0% 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, AutoWeb,Beyond.com,
CareerBuilder, CDNow, CMG, CNET, Digital River, DoubleClick,
eBay, Egghead, eToys,E*Trade, Excite @Home, Gemstar,Getty,
Infoseek, InfoSpace.com, Modem Media Poppe Tyson, Lycos,
Multex,Mapquest.com, Media Metrix, NetGravity, Net
Perceptions, Network Solutions, NewsEdge, ONSALE,
Priceline.com, Preview Travel, SportsLine, StarMedia,
TicketMaster Online-CitySearch, Youbet.com, Value America,
Xoom.com and Yahoo! and has been a managing or comanaging
underwriter or has privately placed securities of Alloy
Online, AutoWeb,Beyond.com, CareerBuilder, Digital River,
eBay, Egghead, eToys, E*Trade, Excite @Home, InfoSpace.com,
Modem Media Poppe Tyson, Multex, Mapquest.com, Media Metrix,
NetGravity, Net Perceptions, Network Solutions, ONSALE,
Priceline.com, Preview Travel, StarMedia, SportsLine,
TicketMaster Online-CitySearch, StarMedia, Youbet.com, and
Value America within the past three years.
* BancBoston Robertson Stephens is acting as an adviser in
the CMGI and Alta Vista merger; therefore, in keeping with
firm policy our rating goes to a No Rating.
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.
Please use these links to download the Weekly Web Report in
another format:
PDF
internetstocks.com
DOC
internetstocks.com
RTF
internetstocks.com
Unless otherwise noted, prices are as of the close July 1,
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 make
purchases or sales while this report is in circulation.
BancBoston Robertson Stephens International Ltd. is
regulated by the Securities and Futures Authority in the
United Kingdom. This publication is not meant for private
customers.
The securities discussed herein are not FDIC insured, are
not deposits or other obligations or guarantees of
BankBoston N.A., and are subject to investment risk,
including possible loss of any principal amount invested.
Copyright * 1999 BancBoston Robertson Stephens Inc. |
