BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
mailto:Keith@rsco.com
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July 30, 1999
The Web Report - Volume 2, Issue #30
This week, the NETDEX index decreased 7% to 520.12. For comparison, the NASDAQ ended the week down 1.7%.
NUMB TO NEWS - With reporting season effectively ending this week, investors seem to be numb to news, possibly in anticipation of a slow August. Remaining reports include Media Metrix and Value America next week, followed by Lycos on August 16. This week, we were particularly disappointed to see no positive stock reaction to TicketMaster Online City Search's report of a huge jump in its revenues, demonstrating a financial inflection point. With stocks generally far below highs, we expect more inactivity than much further erosion. Still, we think the best strategy for a few weeks might be to do nothing.
PREPARING TO GO BACK TO SCHOOL - Over the next month, we will focus on stocks we'd like to accumulate in anticipation of a positive mood developing by September, when the seasonal upturn in commerce may start driving positive surprises. We believe more people are getting into the habit of buying more products and services online. Some observers might be concerned that many new Web companies are emerging and going public. We see most of the new companies confirming the widening array of interesting choices of things to buy, more conveniently or less expensively, online. As awareness grows, we expect spending per person to increase. We were encouraged by the lack of any seasonal downturn in the March and June quarters. As such, we expect acceleration of growth from the September to December quarters. We expect the leading stocks to reach new highs by year-end.
REVIEW OF COVERAGE - As we try to rank and focus on stocks to buy in August, we continue to look to the leading stocks in each category, starting with those offering intermediate-term catalysts potentially. While catalysts can come in many forms, we are inherently looking for signs of accelerating growth. Given the leverage offered by acquisitions, we believe the biggest companies will continue to get bigger, which is why we continue to recommend overweighting stocks like AOL and Amazon. We see each of these stocks poised to reach higher levels of investor appreciation. With AOL, we expect higher levels of revenues and earnings associated with its AOL Anywhere strategy. With Amazon, we expect its investments may pay off dramatically by the fourth quarter. eToys has also made significant investments that should pay off this Christmas. We expect many e-tailing stocks to benefit from anticipation of hot holiday sales. Priceline.com stands out in our minds, for its compell!
ing business model and expanding set of product offerings. eBay seems to have already become more mass market. Value America is building an impressive store of brands and marketing partners.
This quarter, we saw TicketMaster Online CitySearch report a dramatic jump in growth from both ticketing and local directory sales. Recent acquisitions should help continue these trends. We are more challenged to figure out how Yahoo! gets to the next level than how Lycos or Excite @ Home does. With Lycos, we think acquisitions could be significant. With Excite @ Home, we expect the pace of broadband installations could pick up by year-end. StarMedia has built the dominant Web brand in Latin America. CNET has been demonstrating the power of defining a vertical market for both content and commerce for computers and technology. Sportsline is starting to leverage its base of sports fans by offering commerce. Newest in this type of model is Student Advantage, pioneering the student vertical.
We also like companies that are outsourcing content and services to these portals. This includes Infospace.com, Mapquest.com, and Ask Jeeves. Digital River supplies eCommerce outsourcing services to software and other companies moving to the Web. The eBusiness category is just emerging, with a range of business-to-businesses offerings. Stamps.com has a great opportunity to supply postage online to small businesses and others. FatBrain effectively outsources the company book store with growth prospects from other products. US Search provides consumers and businesses with background information to help find lost friends and check out new employees. Career Builder uses the Web to facilitate the recruiting process.
CAREER BUILDER DEMONSTRATES BETTER RECRUITING MODEL: CareerBuilder reported revenues of $3.3 million above our $3.0 million estimate, reflecting growth in customers and revenue per customer. Traffic to the CareerBuilder network continues to grow, increasing 20% from Q1. The CareerBuilder network added 4 net affiliate sites in Q2, bringing the total to 26, and corporate subscribers increased to 815, up from 645 at the end of Q1. We believe the company has a solid strategy and strong management team, which is more than capable of building the company into a large recruitment network online. We expect the stock can be driven significantly higher as the company expands its network, wins more customers, and continues to show momentum in revenues.
TICKETMASTER JUMPS TO NEXT LEVEL: TicketMaster Online-CitySearch reported Q2 revenues of nearly $25.5 million and EPS of ($0.31), well above our estimates of $17.3 million in revenue and loss of ($0.36). Ticketing sales of $17.8 million were nearly double our estimate of $10.1 million. TicketMaster sold 13.5% of tickets online, versus 10% in Q199 and our estimated 9%. Based on these results, we adjusted our revenue and earnings estimates to reflect the strong growth of online ticket sales and amortization for the Sidewalk deal. We believe TMCS is the prime beneficiary of increasing commerce at the local level, with more stores joining CitySearch's network and more traffic for tickets and more. We see prospects for accelerated growth and higher stock values and believe TMCS will return to previous highs.
STUDENT ADVANTAGE READY FOR BACK TO SCHOOL SEASON: Student Advantage reported Q2 revenues of $4.8M and EPS of ($0.19), also significantly better than estimates of $4.0M and ($0.26) respectively. The company ended the 1998-1999 school year with 1.3 million members, up from 1.05 million at the end of the prior year. Other revenues per member in Q2 more than doubled to $2.03, from $0.98 in Q2:98. We believe there could be significant upside to non-subscription revenues long-term. We expect to hear of additional distribution and commerce deals before the big back-to-school season. We believe Student Advantage is building lifetime brand loyalties with an extremely attractive demographic, to which it can continue to market, even after college. We believe there is upside to our model from expanding the membership base, increasing the revenue generated per member and possible strategic acquisitions.
STARMEDIA KEEPS DOING IT RIGHT - StarMedia reported its first quarter as a public company. In our view, the company has learned from examples of other Web success stories and is excelling at building its brand and services in Latin America. With commerce deals just announced, it seems to have gone a few steps further. Q2 revenues of $3.8 million compared to our estimates of $2.0 million. In the quarter, StarMedia's network generated approximately 7.6 million page views per day, up from 2 million last quarter. The average CPM rate was $93, and we believe the sell through rate about 10%. The company grew active e-mail accounts to 1.2 million, up from 424,000 at the end of March. The number of advertisers in the quarter increased to 160, up from 45 in the March quarter. StarMedia made two acquisitions in the quarter, LatinRed and Zeek! We believe LatinRed's community service will help increase time spent per user on the StarMedia network, as will Zeek!'s online directory.!
The company also entered into a partnership with SkyBox Services to offer the first comprehensive eCommerce service in Latin America, with initial commerce partners including 1-800-FLOWERS and ShopSports.com.
EXCITE @ HOME'S FIRST ANALYST DAY - Excite @Home hosted an upbeat analyst day, highlighted by an appearance by Mike Armstrong, CEO of AT&T. It appears the integration of Excite with @Home is behind us, with the best managers of each now running key divisions. AT&T appears to be aggressively behind the push to bring broadband access into more homes. This should be easier by the end of the year with the availability of cable modems that you install yourself. We continue to believe the access debate has more noise than substance, but expect the stock to remain sensitive to twists and turns. In the end, we expect Excite @ Home will exploit its @Home's technology, cable infrastructure, and Excite's content and customized services to build a big network.
ASK JEEVES GROWING VIRALLY: We initiated coverage of Ask Jeeves this week with a Buy rating. In addition, the company reported Q2 results this week of over $2.7 million in revenues, significantly above our estimates of $1.9 million. Corporate revenues of $0.8 million were double our estimate of $0.4 million. In Q2, 92.3 million questions were asked across the Ask Jeeves network and unique users grew 68% to 3.1 million in June from 1.9 million in March. We believe ASKJ will increase its growth rate as it enlarges its knowledge base, expands its network of corporate customers and increases targeted advertising. We believe there is potential for major announcements of large corporate customers in Q3. We believe ASKJ has an attractive business model.
INFOSPACE SCALING: InfoSpace reported Q2 revenues of $6.7M and EPS of $0.01, excluding amortization and one-time charges, significantly above estimates of $5.7M and ($0.05), respectively. Revenues reflected average daily page views of over 17.0M in June, up from 15.5M in March and the earnings upside reflects lower-than-expected expense levels. The company reached profitability two quarters earlier than expected, which we believe shows the inherent leverage in the company's business model. We view InfoSpace as a proxy for Web growth. We expect InfoSpace to grow as fast, or faster, than the Web, allowing the shares to grow into a big valuation.
eTailing Update - Lauren Cooks Levitan 415-693-3309 - mailto:lauren@rsco.com
LIGHT AT THE END OF AMAZON'S SPENDING TUNNEL? Following Amazon.com's upbeat investor day last Friday, we believe the answer is yes. We believe the event provided investors with a road map for how the company plans to achieve long-term profitability. We were impressed by Amazon's deep and talented management team. More significantly, we believe Amazon's infrastructure investments are necessary for the company's product expansion plans and create formidable barriers to entry. We view these as relatively fixed costs that enable superior customer service. Satisfaction will enable high revenues and eventually high levels of profitability, in our view. We continue to believe Amazon is likely to be the disproportionate beneficiary of investor and consumer enthusiasm for online shopping during the 1999 holiday season and beyond. To us, that points toward overweighting Amazon in advance of that enthusiasm.
EBAY DEMONSTRATES MASS MARKET MUSCLE - eBay reported better-than-expected Q2 results across most metrics. We believe eBay's highly scalable business model could become even more evident as the company expands into higher price point products such as artwork, fine antiques, and cars in local markets. Yet despite eBay's considerable growth opportunities, we believe investors were distracted by management's comments regarding potential operating losses over the next two quarters. We were not surprised by the outlook, as we had expected to adjust our model for the company's four recently closed acquisitions, two of which are still in investment mode. Despite the near-term shift in operating profits, driven by ramped up operating expenses, we believe the eBay business model is still very much intact and continues to hold significant open-ended opportunities and compelling profit potential.
ETOYS - SHOWING SOLID MOMENTUM IN ADVANCE OF HOLIDAY SEASON - Despite the significant seasonality associated with the toy-selling business, eToys posted strong Q1 (ended June) results. Customer account growth accelerated to roughly 28%, resulting in approximately 467,000 customers at the end of June. Management also indicated that sales and traffic levels from eToy's recently launched children's books and baby products stores are tracking well ahead of expectations. As anticipated, we revised our estimates to reflect eToys' acquisition of BabyCenter and plans to continue aggressively marketing its brand and move into international markets. We believe eToys is among the best prepared eTailers for this year's holiday season aided by a distribution partnership with Fingerhut. Further, the company continues to add innovations to its service, which we view as highly tailored for the children's marketplace. This week the company soft-launched its registry service, which we expect to!
be very popular with children and gift-givers alike. While we expect stock appreciation may be delayed until we get closer to the big holiday season, our confidence in the company's ability to post dramatic gains during this critical time period continues to grow.
ALLOY ONLINE EXTENDS REACH WITH YAHOO! PARTNERSHIP - Alloy announced a broad one-year marketing partnership with Yahoo! this week. Under the terms of the agreement, the two companies will creatively feature one another's sites, providing the opportunity for a substantial traffic increase for Alloy. Unfortunately, as with a lot of other positive news, investors did not seem to take much notice. Given Alloy's planned integration of its Web and catalog properties with Yahoo!'s various properties and events, we view this deal as one of the more creative marketing agreements between an eTailer and a portal site. We believe teens are one of the most Web-savvy consumer groups. As a result, we believe lifestyle brands such as Alloy that incorporate hip teen fashion and the emerging Internet culture can more effectively reach their target audience through creative, targeted promotions that are perceived as "cool" and unique rather than mass market. We believe business momentum has !
remained strong and the company could report better-than-expected Q2 results. Starting in Q3, we believe Alloy's traffic levels could be dramatically affected over the next several quarters by the Yahoo! deal, helping our revenue estimates to prove conservative.
INITIATING COVERAGE OF SHOP AT HOME - We recently picked up joint research coverage with Bill Meyers, BancBoston Robertson Stephens' Broadcasting analyst, of Shop at Home Inc., a home shopping television network with a fledgling Internet component. Shop at Home is the fourth largest, fastest growing, and only independent company in the $4 billion home shopping industry. The company differentiates itself from its larger peers by focusing on niche products, particularly collectibles, and drawing a relatively disproportionate amount of its sales from men, an otherwise virtually untapped demographic in the home shopping market. Additionally, the company will leverage its reach to 52,000 cable households and 800,000 customers when it opens its collectibles.com Web site in October. With its differentiated, focused approach to the high-end collectibles market (the average order size is over $200), and a Web site that we feel can be a leading site for collectibles products, we beli!
eve Shop at Home is positioned for significant offline growth and online leadership. We expect the stock to be event-driven with announcements regarding online partnerships and progress in the nascent online business as potential positive catalysts.
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Ticker Rating Price Price
7/29 7/22 1-Wk 52-Wk Chg
Chg High 52Wk
7/22 to High to
7/29 7/29
ALOY BUY $12 $10 3/4 12% $23 1/6 -48.2%
AMZN SBUY $101 4/7 $107 1/5 -5% $221 1/4 -54.1%
AOL SBUY $99 1/4 $110 1/2 -10% $175 1/2 -43.4%
ASKJ BUY $42 $46 -9% $77 4/5 -46.0%
AWEB BUY $12 5/8 $14 -10% $50 -74.8%
BYND BUY $21 $22 1/3 -6% $41 1/3 -49.2%
CBDR BUY $ 9 3/4 $15 1/8 -36% $17 3/8 -43.9%
CDNW MP $20 4/7 $21 1/4 -3% $39 1/4 -47.6%
CMGI NR* $93 1/2 $96 5/8 -3% $165 -43.3%
CNET BUY $39 1/5 $42 5/8 -8% $79 3/4 -50.9%
DRIV BUY $23 7/8 $26 7/8 -11% $61 3/8 -61.1%
DCLK NR** $81 7/8 $85 -4% $176 -53.5%
EBAY BUY $102 1/4 $108 4/9 -6% $234 -56.3%
EGGS LTA $ 9 1/8 $ 9 2/3 -6% $40 1/4 -77.3%
ETYS BUY $42 4/5 $36 3/4 16% $85 -49.6%
ATHM NR***$47 $45 1/4 4% $99 -52.5%
GMST SBUY $61 7/8 $70 5/8 -12% $77 1/2 -20.2%
GETY BUY $18 $18 3/4 -4% $30 1/2 -41.0%
INSP BUY $46 4/9 $58 7/8 -21% $72 5/8 -36.1%
LCOS BUY $43 1/8 $91 7/8 -53% $72 2/3 -40.7%
MQST BUY $14 4/5 $17 5/8 -16% $31 7/8 -53.5%
MMXI BUY $37 1/4 $42 -11% $56 5/8 -34.2%
MMPT BUY $21 1/4 $21 5/8 -2% $55 1/8 -61.4%
MLTX BUY $20 7/8 $21 -1% $72 1/6 -71.1%
NETG NR $22 1/8 $22 7/8 -3% $66 7/8 -66.9%
NETP BUY $15 $18 4/9 -18% $35 -57.0%
NSOL BUY $67 4/9 $71 7/8 -6% $153 3/4 -56.1%
NEWZ MP $ 7 3/4 $ 8 -3% $14 1/4 -45.6%
ONSL LTA $17 $17 1/2 -3% $108 -84.2%
PCLN SBUY $80 1/2 $83 4/7 -4% $165 -51.2%
PTVL BUY $22 5/8 $19 7/8 14% $36 -37.2%
SEEK MP $41 $40 7/8 0% $100 -59.1%
SPLN BUY $24 $39 -38% $59 1/4 -59.5%
STMP BUY $31 1/2 $44 3/4 -30% $52 1/2 -40.0%
STRM BUY $ 9 7/8 $46 3/4 -79% $70 -85.9%
STAD BUY $12 1/5 $11 7/8 3% $15 1/4 -20.1%
TMCS BUY $34 3/8 $37 -7% $80 1/2 -57.3%
SRCH BUY $ 9 7/8 $13 -24% $17 3/8 -43.1%
VUSA BUY $15 1/5 $18 3/4 -19% $74 1/4 -79.5%
XMCM BUY $43 1/2 $44 -1% $98 1/2 -55.8%
YHOO BUY $137 $145 1/8 -6% $244 -43.9%
UBET BUY $ 8 1/3 $10 1/5 -18% $17 7/8 -53.5%
NETDEX 520.12 559.56 -7.0% 801.41 -35.1%
KEBDEX 785.86 848.40 -7.4% 1,273.17 -38.3%
COMQ 2,640.01 2,684.44 -1.7% N/A N/A
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(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,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, Multex,Mapquest.com, Media Metrix, Mpath, Microsoft Corporation, 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, Mpa!
th, 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.
* BancBoston Robertson Stephens is acting as advisor in the merger between Alta Vista and CMGI. In keeping with firm policy,our rating on CMGI goes to No Rating.
** BancBoston Robertson Stephens is acting as advisor in the merger between NetGravity and DoubleClick. In keeping with firm policy,our rating on DoubleClick goes to No Rating.
*** BancBoston Robertson Stephens acted as an advisor in Excite@Home's acquisition of iMall; in keeping with firm policy, our rating on Excite@Home goes to No Rating
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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 29, 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 regardi!
ng 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. |
