SEEK STILL STUCK - Disney is acquiring the rest of Infoseek
and merging all its Internet assets to trade under the
ticker symbol GO. We are not surprised by this announcement
but continue to struggle trying to see the upside for
Infoseek shareholders. We find it difficult to value
Disney's contribution of additional assets to justify its
increased ownership to 76% of the combined company. More
importantly, as we see it, with a new round of integration
and management changes, we expect GO may continue to lag
behind the pace of its competitors, leaving the combined
valuation languishing.
eTailing Update - Lauren Cooks Levitan 415-693-3309
mailto:lauren@rsco.com
In a week highlighted by a flurry of announcements from
eTailers including news of expansion into new areas and
consolidation, the eTailDEX remained relatively flat at
1229..39. We note that the key eTailing deals did not
incorporate price premiums and thus, the eTailDEX still
stands 32% below the 52-week high. With solid Q2 results
expected next week from Amazon and other eTailers, we expect
a continuation of this week's momentum. We have added six
eTailers to the index, thereby increasing the number of
companies in the eTailDEX to 30 representing a market
capitalization of $67.7 billion. Our additions include:
barnesandnoble.com (BNBN), Bluefly (BFLY), Fashionmall.com
(FASH), Global Sports (GSPT), Musicmaker.com (HITS), and
Streamline (SLNE).
VALUE AMERICA FORMULA WORKING - We believe now is a
compelling moment to focus on Value America, which we
believe has been almost completely overlooked in this year's
wave of IPOs. While its difficult to point to a magic
formula, the basic ingredients of a successful eTailing
strategy start with attracting an audience and building
brand momentum through above-average customer service. The
first step of service is securing supply. Value America
effectively offers a direct marketing channel to major
brands across a broadening range of consumer and SOHO
product and service categories. More brands are attracted by
the growing audience, which in turn provides an incentive
for the manufacturers to put more resources behind product
fulfillment. We have been pleasantly surprised to see some
2,000 brands now represented. We expect the next positive
surprise will be membership growth. Value America has
established dozens of relationships with large charitable
and religious organizations. The marketing method is to
have these groups ask their members to shop at a custom
Value America store affiliated with the organization. In
turn, Value America shares a few percentage points of
revenues with these non-profit companies. We believe the
response rates on these marketing programs will prove
surprisingly high. This provides leverage to Value
America's accelerating advertising spending, which is also
supplemented by manufacturer rebates for highlighting brand
values. As such, we believe Value America can show positive
revenue surprises in the June quarter, accelerating through
the summer season. Few eTailing competitors are trying to
be as broad and aggressive. We find the logic of Value
America's program appealing to these multiple partners that
can provide competitive and long-term financial leverage.
ETOYS - A BIGGER PLAYGROUND VIA NEW BOOK STORE- eToys
launched its children's bookstore this week. While the $2.5
billion children's book market is small relative to the $24
billion toy market by our estimates, we feel the added
breadth of SKUs (from approximately 15,000 to 100,000)
further solidifies eToys' positioning as the premier
one-stop eTailing destination site for children's products.
We are impressed by the numerous kids-oriented features
incorporated into the eToys book store and believe it is
consistent with the company's singular focus on being the
very best eTailer for all children's products. We
particularly like the enlarged view of book pages and very
granular age recommendations. We continue to believe eToys
can reduce its severe revenue seasonality through
investments in ancillary businesses. Seasonal stores (such
as back-to-school and Halloween), sporting goods and party
goods seem likely next areas of expansion. We had expected
eToys' expansion into other product categories like this
could serve as a positive stock catalyst during seasonally
slower periods; however, Amazon's entrance into eToys' core
toy area later this week could limit upside. We believe
that the market is large enough for both players and remain
convinced that as eToys continues to introduce new stores
and expand its target market opportunity from the
approximately $50 billion addressed today to about $100
billion, the stock can grow into a larger valuation.
AMAZON VS. ETOYS - Amazon.com made news of its own this week
when it launched online stores for toys and consumer
electronics. The complexity of Amazon's new categories sheds
some light on why infrastructure investment has accelerated.
Amazon's entry into the toy market should come as no
surprise to investors as the company has been making contact
with industry leaders over the past several months. We are
also not surprised by the move into consumer electronics
given the company's recent link placements of top-selling
electronics products on its homepage. We believe many
Amazon customers will be interested in buying across an
increasing number of categories, particularly if loyalty
programs provide them with an additional incentive for
remaining in the Amazon fold.
CDNOW MERGES AGAIN - CDnow announced its merger with
Columbia House to form an entity to be owned jointly by
Sony, Time Warner and CDnow shareholders. At the same time,
CDnow pre-announced that it missed consensus revenue
estimates for the quarter, despite aggressive promotions.
CDnow's success will now be helped by its ability to
leverage the enormous resources of its new partners, with
the inherent cost advantages of the club model, and the
possibility of early participation in the development of
digitally downloaded music. Columbia House has 16 million
customers, including 2 million online, and spends $350 -
$400 million per year on member recruitment. According to
MediaMetrix data and assuming some overlap, the combined
entity would have been the fourth most popular Shopping Web
site for May. While we believe the combination with Columbia
House is positive, we still believe its competitive eTailing
position is weak relative to competitors', like Amazon,
which can leverage more marketing muscle.
EGGHEAD AND ONSALE STILL FACE TOUGH COMPETITION TOGETHER -
Egghead and Onsale announced plans to merge this week.
We've been surprised by the relatively few number of mergers
between Web-grown companies. We are pleased the Egghead
brand and company name will remain given its awareness among
consumers. The Onsale name will remain the primary brand for
auctions on the site. We estimate Onsale generates roughly
twice the revenue per unique visitor than Egghead does,
allowing cross promotion. However, we remain concerned that
the new company does not seem to have enough combined brand
recognition or an economic formula to deal with aggressive
price competition. Further, with the merger planned to
close in October, we wonder if integration distractions
could result in the new company being unprepared for the all
too important 1999 holiday season. We remain cautious.
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Ticker Rating Price Price
7/15 7/8 1-Wk 52-Wk Chg
Chg High 52Wk
7/8 to High to
7/15 7/15
ALOY BUY $12 3/4 $13 -2% $23 1/6 -45.0%
AMZN SBUY $139 4/7 $125 3/8 11% $221 1/4 -36.9%
AOL SBUY $121 $127 2/3 -5% $175 1/2 -31.1%
AWEB BUY $15 4/7 $16 3/8 -5% $50 -68.9%
BYND BUY $28 7/8 $28 3/8 2% $41 1/3 -30.1%
CBDR BUY $14 3/4 $15 3/4 -6% $17 3/8 -15.1%
CDNW MP $22 7/8 $19 4/5 15% $39 1/4 -41.7%
CMGI NR $112 1/4 $119 7/8 -6% $165 -32.0%
CNET BUY $51 7/8 $50 4% $79 3/4 -35.0%
DRIV BUY $32 5/8 $35 -7% $61 3/8 -46.8%
DCLK NR $101 7/8 $100 4/9 1% $176 -42.1%
EBAY BUY $127 $134 1/5 -5% $234 -45.7%
EGGS LTA $11 $11 2/3 -6% $40 1/4 -72.7%
ETYS BUY $39 2/3 $46 5/8 -15% $85 -53.3%
ATHM NR $47 4/7 $54 4/5 -13% $99 -52.0%
GMST SBUY $74 1/2 $74 1/3 0% $77 1/4 -3.6%
GETY BUY $19 4/7 $19 1/2 0% $30 1/2 -35.9%
INSP BUY $54 1/4 $52 4/5 3% $72 5/8 -25.3%
LCOS BUY $104 $107 4/9 -3% $145 3/8 -28.5%
MQST BUY $19 $20 5/8 -8% $35 -45.7%
MMXI BUY $49 $51 1/8 -4% $56 5/8 -13.5%
MMPT BUY $22 1/3 $22 1% $55 1/8 -59.5%
MLTX BUY $27 1/4 $26 1/2 3% $72 1/6 -62.2%
NETG NR $27 5/8 $26 6% $66 7/8 -58.7%
NETP BUY $22 $23 -5% $35 -37.3%
NSOL BUY $83 $78 3/8 6% $153 3/4 -46.1%
NEWZ MP $ 9 $ 8 1/4 8% $14 1/4 -37.3%
ONSL LTA $20 3/8 $21 7/8 -7% $108 -81.1%
PCLN SBUY $101 1/8 $110 2/3 -9% $165 -38.7%
PTVL BUY $24 1/3 $23 3/4 2% $36 -32.5%
SEEK MP $43 4/5 $50 1/2 -13% $100 -56.2%
SPLN BUY $40 3/4 $35 4/7 15% $59 1/4 -31.2%
STRM BUY $54 1/4 $54 2/3 -1% $70 -22.5%
STAD BUY $13 1/8 $12 1/2 5% $15 1/4 -13.9%
TMCS BUY $34 7/8 $34 1/4 2% $80 1/2 -56.7%
UBET BUY $12 4/7 $12 1/2 0% $17 7/8 -29.7%
VUSA BUY $19 1/2 $20 2/3 -6% $74 1/4 -73.7%
XMCM BUY $56 3/8 $55 7/8 1% $98 1/2 -42.8%
YHOO BUY $154 4/9 $164 4/9 -6% $244 -36.7%
NETDEX 624.97 647.23 -3.4% 801.41 -22.0%
KEBDEX 949.70 992.40 -4.3% 1,273.17 -25.4%
COMQ 2,839.37 2,771.9 2.4% N/A N/A
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(1) Change based on last 12-month's performance.
* 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.
** BancBoston Robertson Stephens is acting as an adviser in
the DoubleClick and NetGravity merger; therefore, in keeping
with firm policy our rating goes to a No Rating.
*** BancBoston Robertson Stephens is acting as an adviser in
the Excite/@Home merger; therefore, in keeping with firm
policy our rating goes to a No Rating.
Source: AT Financial Information and BRS Estimates
BancBoston Robertson Stephens maintains a market in the
shares of Alloy Online, Amazon.com, AutoWeb,BackWeb,
Beyond.com, CareerBuilder, CDNow, CMG, CNET, Digital River,
DoubleClick, eBay, Egghead, eToys,E*Trade, Excite @Home, f5
Networks, Fatbrain, Gemstar,Getty,Infoseek, InfoSpace.com,
Inktomi, ISS Group, Modem Media Poppe Tyson, Legato, Lycos,
Microsoft, Multex,Mapquest.com, Media Metrix, Mpath,
NetGravity, Net Perceptions, Network Solutions, NewsEdge,
ONSALE, Portal Software, Priceline.com, Preview
Travel,RealNetworks, Security Dynamics, SportsLine,
StarMedia, TicketMaster Online-CitySearch,Youbet.com, Value
America, VeriSign, Xoom.com and Yahoo! and has been a
managing or comanaging underwriter or has privately placed
securities of Alloy Online, AutoWeb, BackWeb, Beyond.com,
CareerBuilder, Digital River, eBay, Egghead, eToys, E*Trade,
Excite @Home, f5 networks, InfoSpace.com, Legato, ISS Group,
Modem Media Poppe Tyson, Multex, Mapquest.com, Media
Metrix, Mpath, NetGravity, Net Perceptions, Network
Solutions, ONSALE, Portal Software, Priceline.com, Preview
Travel, RealNetworks, Security Dynamics, StarMedia,
SportsLine, TicketMaster Online-CitySearch, VeriSign,
Youbet.com, and Value America within the past three years.
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 July 15,
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
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BankBoston N.A., and are subject to investment risk,
including possible loss of any principal amount invested.
Copyright * 1999 BancBoston Robertson Stephens Inc. |
