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Technology Stocks : Netzero - A Nationwide Advertiser Supported ISP -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (60)	9/2/1999 8:13:00 AM
From: Secret_Agent_Man	Respond to of 61

S.Harmon Update>e-harmon.com's NetStock! by Steve Harmon ceo of e-harmon.com "for the internet investor" e-harmon.com ___________________________ NetZero grew from zero to more than 1 million registered users in 8 months ending this June. The free ISP beat Microsoft, CompuServe, Prodigy, Earthlink and Mindspring in percentage of growth in such a short time. And in adding subscribers in such a short span. If "subscribers" is the right term. Because NetZero provides free Internet access. You give them everything but a DNA sample and they keep the lights on for you with their own branded Internet service that recoups its investment (or so the model goes) by selling you to the advertisers and marketers. I ran some numbers on what NetZero thinks the notion is worth: with a pro forma IPO market cap target of $1 billion that implies a registered user/subscriber value of $879 (using June data on users). NetZero pro forma IPO Shares offered 10.00 Target price $10.00 Shares out $102.90 IPO cap $1,029.00 Latest Q revenue $3.73 Latest annual rev $4.63 Annualized $14.92 Daily ad impressions 28.00 Registered users 1.17 IPO value/ad impressions 36.75 IPO value/reg. Users $879.49 Revenue multiple 68.95 in millions except share price, multiple (c) 1999 e-harmon.com, inc. Seem high? I think so. Consider that a card-carrying paid subscriber -- at $20 per month -- is valued at between $1500 to $2000 on ISPs including Earthlink (NASDAQ:ELNK) and Mindspring (NASDAQ:MSPG). Should a free subscriber/user command half that? Probably not. A closer comparison I believe is the value per unique user of a service such as Yahoo, Excite, Lycos, Go2Net, and even those are ranked higher in the user food chain. The top 10 web sites value per unique user is about $500. Idealab, the Pasadena-CA based thinktank that hatched NetZero, acquired Pointcast for $7 million. Pointcast used to be the leader in the kind of service that NetZero provides, an "always open" portal to the Net for news and info. NetZero's "ZeroPort" follows an emerging trend that I call "mini-portals" in which a user has open a window for news, stocks, etc. on the desktop. In some ways it's a throwback to the notion of "push" circa 1997. NetZero has an impressive growth rate, however, and its revenue scaled fast between launch in October 1998 and June this year. Latest quarter was impressive with $3.73 million, easily a majority of the ISP's revenue to date. If that growth continues I forecast NetZero ending the year at better than $15 million. The revenue multiple, however, looks aggressive at about 70x. The old expression "you get what you pay for" also comes into play. NetZero's model relies on the users sharing personal data, data that can be sold to advertisers and marketers. This in turn translates into a contstant bombardment of ads for those that use NetZero. The always on ad notion again is a throwback to Pointcast's ad-delivery model that played "interstitials" throughout the user experience. The key question is can NetZero ever make a profit? In a raw way, its customer acquisition costs have been low -- it's burned through $15 million or so building a 1.17 million user base. So the appeal of "free" does create momentum in adding users. To get profitable I think NetZero must get to the 5 million or better registered and regular user range, which would put it clearly in the number 2 slot in the ISP arena, way behind AOL still but way ahead of MSN, Earthlink and Mindspring. Can NetZero get there? I think so but it may take a few years, 24 months to 36 months. At that point can we back into a $1 billion-plus valuation? Perhaps that justifies an IPO pop today, with NetZero slated to go public next week. But a huge premium at this juncture could backfire if the freebie ISP model can't scale to revenue (and therefore cash flow/earnings) of its paid peers. If the freebie model doesn't pan out it could be closer to ground zero in the physicist sense. ********* pass this report onto a friend or colleague! they can sign up at e-harmon.com FREE! ********* _________________________________________________ (c) 1999 e-harmon.com, inc. This analysis may be shared for non-commercial purposes 100 percent intact, with proper copyright and attribution. Disclaimer: e-harmon.com does not make specific trading recommendations or give individualized market advice. Information contained in e-harmon.com's NetStock! is provided as an information service only. e-harmon.com recommends that you get personal advice from an investment professional before buying or selling stocks or other securities. The securities markets and especially Internet stocks are highly speculative areas for investments and only you can determine what level of risk is appropriate for you. Also, users should be aware that e-harmon.com, its employees and affiliates may own securities that are the subject of reports, reviews or analysis in NetStock!. Although e-harmon.com obtains the information reported herein from what it deems reliable sources, no warranty can be given as to the accuracy or completeness of any of the information provided or as to the results obtained by individuals using such information. Each user shall be responsible for the risks of their own investment activities and, in no event, shall e-harmon.com or its employees, agents, partners, or any other affiliated entity be liable for any direct, indirect, actual, special or consequential damages resulting from the use of the information provided. _________________________________________________ To SUBSCRIBE please visit e-harmon.com