steve,, CYBERSURF CY ON ALBERTA
some further info on cybersurf, estimated earnings for year 2000
24 cents a share
Interviews Homepage
StockHouse.com News Maker Interview - Apr. 15, 1999
Interview with Cybersurf CEO William Hammett: Potential
Cybersurf Expansion into U.S.?
• • •
According to a Rogers & Partners equity research report, "Cybersurf has created the only free Internet
service in Canada, supported by a sophisticated, demographically intelligent desktop advertising
application (3web), and has captured the attention of the nation (Canada) at large. Over the course of
4 years, Cybersurf's development team has demonstrated its ability to produce and market
leading-edge software applications, such as 3web, online banking, and the first patented network
computer (the Virtual T1).
As of April 5th, 3web had attracted over 55,000 subscribers in Calgary and an addtional 10,000
subscribers after only one week of operations in Edmonton. According to Brian Harrison, co-author of
the above-mentioned research report, "Cybersurf's proprietary 3web advertisement-supported Internet
portal is unlike any in existence, in that it brings highly targeted, demographically specific advertising
to the user's desktop…3web's advertising is always visible."
Cybersurf Corp is a public company listed on the Alberta stock exchange [C.CY] with revenues
exceeding $2.8 million in FY1998, ending June 30th. Revenues for the six-month period, ending
December 31st were $2.04 million. Earnings were $500,000, or $0.03/share.
StockHouse spoke with William Hammett, CEO of Cybersurf, to find out more about the company's
plans, product and future expansion.
StockHouse: Your stock had a really big run recently.
William Hammett: We certainly have.
StockHouse: What's been happening aside from your recent news release?
Hammett: The only thing that's happened here is a small brokerage firm (Rogers and Partners
Securities Inc) here in Calgary has put out a research report on our company.
StockHouse: Would that account for today's rise?
Hammett: It may be a factor. I don't know how well it was distributed. They were sending it around to
some of the brokers, so it may be a factor there today. Another thing: we were on the second page of
the Financial Post. We actually had the headline under "Market Action" as well. They highlighted the
Molson part, in that it was unique because it could provide advertising to a specific demographic
profile. For instance, the Molson Canadian beer ads will only be visible to users of legal drinking age.
StockHouse: There have been a few U.S. companies doing something on this order in the United
States, but not to the specific demographic profiles, as in your service. Is this the only one of its kind?
Hammett: The biggest thing about it - you have to really stop and think about it - is that normal
web-based ads can't be geographically specific. So unless you have a product or service, you're
offering to the world, you're paying for a lot of impressions that really are meaningless. The key thing
is that we can not only target the city but the areas inside the city.
StockHouse: Do you give them the entire computer or just the
software?
Hammett: We provide the software program and the service, the actual
connection.
StockHouse: So they have to buy their own computer?
Hammett: Oh yeah.
StockHouse: OK, because in the United States there is a company
offering free computers, if you watch their ads.
Hammett: I read about that. That's really an unspecified Nielson
Group. That's what they want. In a way, that's one of the big attractions
about what we've got. That's why some of the major advertisers -
Proctor and Gamble is the largest advertiser in the world and they were
intrigued about the (Cybersurf's) information-gathering capabilities -
because you turn them around and you can run your ad in front of
everyone. And then find out what demographics actually clicked on it and who was intrigued by that
particular ad. If you're spending $10 million annually, that can be quite substantial
StockHouse: Have you had any privacy issue hassles?
Hammett: Privacy? We're taking the high road on privacy. We don't track what people do. They
actually volunteer the demographic information when they set up their system, under the initial launch
of free web on their computer. By doing that, we also guarantee them that we will not release any
personal data. So the advertiser can't know your personal data. They can only know your demographic
data.
StockHouse: Do they have access to your email address?
Hammett: No, they don't have access to your personal information. We have that data because we're
required to keep that data but we don't give that out.
StockHouse: How long have you been operating this free service?
Hammett: We have been operating Free Web in Calgary since August 1998 and we have over 55,000
users in Calgary. We've operated in Edmonton since March 1999
StockHouse: So you're a very localized service. If they want to sell to the Calgary market, you kind of
become the Internet TV station?
Hammett: That's right. That's very close - the new medium. That's the difference. Our advertising is
delivered to their desktop. You can think of it like a magazine, only this magazine can be whatever the
person wants. The ads that are delivered to them are the ads that are appropriate to their age, sex,
etc. That makes it intriguing. This goes back to the Molson case where on TV they're paying for
impressions on 5-year-olds and they don't need that or want it. This is efficient advertising and that's
really attractive. It's two things. It's one-to-one marketing because they can target the particular
segment of society that they want. Then, it's efficient because they don't pay for impressions that are
wasted. And that's a huge advantage for us, too. Not only do we target geographically but by age, sex,
etc. And we can also guarantee the impressions, which is a major concern for the advertiser - the
web-based advertising. You click on a page on a website, there is no guarantee that the person is
actually seeing the ads. They rotate. Every one is up for 10 or 15 seconds and when you click on a
link there is still no guarantee you will see any ads. Yet, the advertisers are being charged for that
impression. In our case, the advertisers are running over a period of months. They are always there as
long as the person is using our software. The ads are there. They take up about seven to 10 percent of
the screen. We thought a number of people would find that obtrusive and that we would have requests
to take out the ads and pay us a monthly fee. We have had virtually no takers on that.
StockHouse: Basically, you have no subscriptions at all?
Hammett: Not for the Free Web service. It's virtually nil.
StockHouse: Are you making your money on advertising or joint venture deals?
Hammett: The moneymaker for the service is advertising and e-commerce opportunities.
StockHouse: Are you making any money at this or is it still at the growth stage?
Hammett: We're in a growth stage. That's one of the reasons we did what we did in Calgary and
Edmonton, which is to start up a software company. A lot of time and money have been invested over
the past 3 years. In order to get the capital to launch Calgary and Edmonton, we sold the licenses,
took a certain portion in cash and notes on the balance. As well, we get management fees and service
fees. As the note revenue comes in we recognize that revenue. Now, there is one wrinkle in Edmonton
in that we were already established in Calgary so we were able to strike a much better deal. We sold
80% to date to a company called Growth Tech, which is a Limited Partnership. We have an option to
buy back those units at 150% for what the person paid for them. That's attractive to them, they get a
deduction on their tax return, and they can pay for it over one year. We'll be able to pay it back with
future stock issues, which as you can see, is extremely advantageous to us, too.
StockHouse: You're looking at future stock issues at some point?
Hammett: Yes. We would have had to issue 3 million shares or so last December in order to raise the
funds to launch Edmonton.
StockHouse: How many shares do you have out?
Hammett: Approximately 18.67 million; 21.6 fully diluted.
StockHouse: You've been exercising options during this run-up?
Hammett: There were some options that were exercised. We have a large number of employee
shareholders. There were some warrants that were exercised, too.
StockHouse: Where do you grow from here?
Hammett: The major centers: Toronto, Vancouver, potentially the US, and potentially other parts of
the world.
StockHouse: Does much of this depend on a rollout by Proctor and Gamble?
Hammett: No. P&G is only a small piece of the equation. They're significant because where they go,
a lot of people will follow. But, we've got a number of large international companies, like Drake
Consulting. Local companies like Telco, here in town. They only offer services in this province. Why
would they want to advertise to the world on something like Yahoo? They could afford to, but it would
be a waste of money. So our service is ideal for them.
StockHouse: What are your revenue projections for FY1999 and FY2000?
Hammett: In FY1999 we're projecting about $3.8 million CDN. In FY2000, we're projecting about
$16million CDN and the sales of 2 licenses.
StockHouse: That's quite a jump.
Hammett: Yes.
StockHouse: Are you going to make money in FY1999?
Hammett: Yes, between 3 and 4 cents a share.
StockHouse: What are your earnings projections for 2000?
Hammett: We're estimating 24 cents fully diluted. Those are the latest estimates.
StockHouse: Thank you very much.
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