STARNET - THE NEXT MICROSOFT OF THE INTERNET? (SNMM)
Sting's Buzz Bin
Written by: stingcc
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STARNET - THE NEXT MICROSOFT OF THE INTERNET? (July/8/1999)
What kind of stock recommendation comes from such highly acclaimed experts with names like BarryZ1; Busted Spike; Yorktown; and Mojo The Kingslayer? Why an Internet Gaming corporation of course! And we're not talking about just any little old gaming company; we're talking about Starnet Communications Corporation (SNMM), recently decried by Forbes Magazine as having a "plan to become the Microsoft of casino software vendors."
Starnet Canada is a wholly owned subsidiary of Starnet Communications International Inc. and was incorporated in May 1995 and is Vancouver-based. The company specializes in developing, marketing, and managing advanced on-line interactive media and information systems for the Internet. On September 18, 1997 Starnet Communications International Inc. commenced trading on NASD Over-the-counter Bulletin Board Market under the symbol SNMM. Over the last year-and-a-half, Starnet has executed a strategy of licensing its proprietary Internet gaming technologies to independent operators through a wholly owned subsidiary, Softec Software Caribbean, Inc. These technologies are provided as a turnkey gaming operation in exchange for participation in the licensee's revenues. Over the last year-and-a-half, Starnet has continued to add dozens of sportsbooks and casinos to its expanding family, and one thing that separates SNMM from the rest of the fray is that not all their books are made up of unknowns (or in the case of SOME publicly traded on-line gaming corporations, UNWANTEDS).
This past week, the fireworks could not wait until the 4th as Starnet stock shot through the roof. The last trade as of Friday being 24.75 with volume of 1,728,800. According to one industry analyst who acts as a commentator for a new site called Internet-Gambler.com, "A recent exposition in Vancouver of 15 Internet Companies of which SNMM was one went very well for them, and they were able to show their strength to some heavyweight investors. Undoubtedly, this has led to some of the heavy big money investing." This self-proclaimed stock guru calls himself Mojo The Kingslayer (meaning unknown). He offers a crash course in SNMM 101 at the site and is just one of many over the net who have gone onto make fellow investors tons of money. The Massachusetts native has predicted his vision of SNMM's future: "Earnings are expected between 7/15 and 7/30. Consensus estimates are .06 to .08. ...... I predicted .10 and will stick to it. Why? Last q they did .04, and in the last 3 months the $100,000 fees from bettor than 10 new licensees will add .04 to earnings. In addition we'll see rise in revenues from their previous new additions, so even though its a weak q gaming wise they should do better."
Here is a corporation that has virtually zero competition in this sector and those companies that are vying for a piece of the pie are lagging so far behind it would take Bill Gates with a little help from Donald Trump to get them back on track with SNMM. Other companies such as Global Entertainment Corporation (GGNC) have demonstrated themselves to be either terribly mismanaged or, in the case of SBET, broken beyond repair due to past abnormalities and delinquent ownership.
Starnet, on the other hand, has shown itself to be a champion of this industry, now in the earliest stages of its infancy. Seen as the shining star hovering over hundreds of profitable offshore sportsbooks and casinos, some of which operated out of basements just over two years ago and today occupy whole floors in sleek new office building complexes with upwards of 100 employees. Starnet does in fact hold the key to bringing legitimacy to the world of on-line gaming and offshore sportsbooks operations.
Players Casino and Sportsbook is not only a licensee or Starnet, but they also act as a Superbank and Call Center (as opposed to Starnet itself which acts as a Technology Center) for a group of Starnet licensees, both of whom earn a small commission in return. Recently, The Players Group, run by Patrick Callahan, a transplanted Canadian who now makes his home on the island of Margarita, bought the name Wallstreet.com for a mere million dollars and some change. Callahan is determined to make Starnet the top dog in an industry full of inbreeds; scam operations mixing with other irreputable operations to form a single entity that seemingly shuts down overnight, runs off with clients monies, only to reemerge under some other name to perpetuate the whole scam anew.
To get a better idea what role Starnet plays in this industry, a spokesperson for Players Told the Buzz Bin back in March: "Starnet is in the business of licensing software. If you look, half their revenue came from the upfront fee licensees have to pay to get the software up and running. They book those fees when the licensee gets turned on and clearly indicates they have a large pipeline. In addition, they have stuck to their word and are signing on 2-3 new licensees a month....the software is good and the way they run the whole setup it is really turnkey. Put down $100,000 and within the month a fully functional website designed to your specs will be delivered. You have to do nothing more than market....Starnet takes care of everything."
"Now, everyone thinks you just turn on an online casino and bam, you make a killing. Not so, there are a lot out there. You have to have a marketing angle. Take a look at one of the sites in the Players group, Sporsbook.com and look at Vegasinsider and Soccernet, we are plastered all over there signs.....We spend a ton of money with them every month and as a result we get more bang for our buck than anyone else ever has a shot to. They give us tons of free exposure on top of what we pay whenever they can and now Sportsbook.com is Starnet's single most profitable casino/sportsbook. Starnet takes anywhere from 15% to 40% of your action, depending on how much volume you do, the more volume, the lower the fee. Revenue from actual gaming activity is only 50% of profit right now, but it is growing, once a casino gets turned on, if marketed properly it can become self-sufficient within 3 months and highly profitable within 6 months."
SNMM, like most growing companies is not without its scars. Not that Starnet is trying to perpetuate any sort of cover-ups. On the contrary, SNMM has had its own image tarnished by doing exactly the opposite. While the company continues to make inroads in the on-line gaming and sportsbook industry, they continue to dismantle some of their top performers (and we mean "top performers"). Starnet owns a varied assortment of porn sites that have been cited as making the stock less attractive to investors. Additionally, SNMM stock becomes a "hard sell" (pardon the pun) when trying to legitimize an industry by incorporating it with porn. Also the company is making every effort to disassociate itself with licensees who have been scrutinized by the public eye in the past (Claude Levy comes to mind here).
Another sticking point with Starnet investors would have to be the negative impacts that might transpire if and when the Kyl Bill passes in the House of Representatives. The bill created by controversial Arizona State Senator, Jon Kyl, seeks to abolish all forms of on-line gambling by going after not only the offshore operators, but the internet providers themselves. While most critics argue this bill will do little to quash an industry that has already made offshore casinos and sportsbooks more popular than Vegas, many investors still choose to take a "wait and see" attitude. Fact is the second oldest profession in the world has already taken on some form of legitimacy with or without Starnet and just as the end user will find ways to get around such contradictory legislation, so then will the operators themselves who have overcome some major obstacles in the past. To think that even a successful abolishment of on-line gambling in the US would eliminate a company such as Starnet is without merit considering a number of their more successful licensees do not accept wagers from US citizens in the first place.
One posting on the popular investor board, Ragingbull.com, alludes to this theory. This was posted by an obvious savvy investor named J. Kamiski: "I do not see too much of an effect of the Kyl Bill on the valuation of SNMM. The only thing is that the increase in our revenues as well as our revenue growth during the next 2 quarters are not factored in our price. Institutions are not yet following SNMM and we are still a BB stock. This creates a fantastic buying opportunity at these levels."
The Internet Stock News Club founder, Chris Agarwal, recently conducted an interview with Starnet's CEO, Mark Dohlen, at the Online Gaming Expo in Vancouver, which was also sponsored by Starnet. ISN contemplated the visit to a city they described as "Long known for its security regulation violators and stock manipulators" (ain't that the truth!). They also declared Vancouver as "sporting a dichotomy of boutique Internet investment companies and Internet software companies."
As reported by the ISN, in regard to the scalability of Starnet's gaming business, Mr. Dohlen stated that Internet gaming is generic and extremely scaleable. He stated, "It goes across all cultural barriers and jurisdictions. There is no industry that is similar. We have been unable to come up with a more effective use of the Internet for business than gaming. The #1 search word on the Internet is no longer sex. It is now casino. If you think you are going to beat us. I'm sorry." Regarding Starnet's application for listing on the NASDAQ National Market and information about next quarter's earnings report, Mr. Dohlen stated that Starnet is currently performing an audit and that after they are done, he expects the company to go right to the NASDAQ National Market. In addition, he stated that he expected the audit to be complete as soon as July 15th. This day is fast approaching.
Mr. Kaminski brings up an interesting point related to Market Cap in his posted information at Ragingbull. "Since we (SNMM) are profitable, why our share price is not in line with EBAY which posted similar EPS (actually a bit more). So why can't we expect a bit under $200 per share? Using EPS to explain valuations of high growth stocks very misleading. These companies are trying to get established in the market place and spending all their revenues and more to increase their market share. Although, profitability is richly rewarded on WallStreet, revenue levels and revenue growth are more important than EPS during the growth phase of such companies. Once growth cycle is phased out, profit margins and revenues will dictate the profits and then EPS will be meaningful. In the past I have posted a few comparative analysis of SNMM with the multibillion dollar Internet companies in terms of its revenues and revenue growth."
And just what are the shareholders saying about SNMM? Paul Adams along with his wife, Christine, own shares and cannot be any happier: "I own 3000 shares at an average total cost of $4.25 per share. When the stock moved over $9 a share I had over a $14,000 profit sitting there --pretty good for less than a month! A friend said that's a home run "SELL" and I said a home run will be $300,000. It's hard to describe the feeling that just owning this stock gives me--it's a dream, it's a once in a lifetime event, it's energizing! It will take 2 to 3 years-- but when it happens I will be there." Vito A Ruggiero of Pinkerton Computer Consultants has strong hopes for this company and his investment in it as well, "here is the bottom line..onling gaming is projected to be a 10 Billion dollar arena by 2002...so that's conservative by any means...SNMM is the market leader..when is the last time any other company signed a new license? so lets estimate we have 75% of the market in 2002....whats a 7.5 billion dollar company worth per share? I'd say a whole lot more then the 9 1/2 it's at today." Another investor who wished only to be identified as "Benny" additionally explained, "RB members hold approx 13-15% of float. New long term buyers since the breakout above $4 last week accounts for an additional nn% of float?" He also refereed to a posting on the Ragingbull SNMM message board from a gentleman who started out as a daytrader and soon became very long on this stock. The posting goes on to read: "The combination of EXTREMELY RAPIDLY growing top line revenue, bottom line profit, Nasdaq national listing, being in the hottest sector (internet) , a FABULOUS PRODUCT, and last but definitely not least is the MANAGEMENT (THEY ARE WHO'S WHO). This combination is BEYOND WORDS."
"Beyond words" may be the best way to describe this company indeed. With Starnet only in the early stages of its life and so many already prospering from its rapid success; one can only begin to imagine what riches lie in waiting once SNMM ultimately gets itself listed on NASDAQ. As far as Starnet becoming "the next Microsoft of the Internet"? Well, only time will tell, but for some wise investors, as well as those wise enough to follow in their footsteps, the dream conceived by Starnet is already a reality, and one they themselves could not have even imagined just over a year ago.
Christopher Stingone is a free-lance writer. His views and opinions do not necessarily reflect those of Bettorsworld, its affiliates or sponsors.
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