A positive article on GNET today in Multex Investor Network
Pertaining to Portals
The changing faces of INSP, GNET, LCOS
multexinvestor.com
by Juliana Tillema
September 23, 1999
As Internet infrastructure businesses continue to feel much pressure to
develop, integrate, and specialize quickly, InfoSpace.com Inc.(INSP:
research, earnings), Go2Net (GNET: research, earnings), and Lycos Inc.
(LCOS: research, earnings) have become some of the fastest-growing and
attention-grabbing sites among portals.
InfoSpace.com Inc. was recently chosen by Sprint PCS (PCS: research,
earnings) to provide the core directory to Sprint's new Smartphone product, a
device allowing users to find people, places, and things in their neighborhood
and around the world. InfoSpace has also recently developed strategic
relationships with Delphi Information Systems Inc. (DLPH: research,
earnings) and Net2Phone (NTOP: research, earnings).
U.S. Bancorp Piper Jaffray analyst Safa Rashtchy initiated coverage of
InfoSpace with a BUY rating in a September 10 report on the company.
Rashtchy notes that over 1,800 web sites and close to 90% of all Internet
users rely on InfoSpace's infrastructure and content for daily information and
services. The company provides content, community, and commerce to the
leading Internet media networks, including America Online (AOL: research,
earnings), Lycos, and Excite@Home (ATHM: research, earnings).
According to Rashtchy, InfoSpace offers two investment advantages: "lower
risk, because of diversified source of customers (1,800 web sites) and
revenues, and an infrastructure that is needed by every portal and Internet
media site." The company's revenue sources include advertising and
sponsorships, license and transaction fees, and local advertising, the analyst
says.
InfoSpace has several key initiatives that the U.S. Bancorp Piper Jaffray
analyst believes will produce growth and upside potential. Rashtchy believes
Desktop Portal in particular will offer growth potential, as will the introduction
of Active Shopper, a comparison shopping service. Furthermore, InfoSpace's
duplicated reach is over 300%, meaning the average Internet user has three
web sites to choose from to get the company's content and services.
Aggregation, integration and distribution are InfoSpace's three key competitive
advantages, says Rashtchy. The company aggregates content from various
sources and uses geography, subject area, and other criteria to bring useful
services to the user. Finally, InfoSpace distributes this information to its
affiliates and partner web sites. The major risk for this business, according to
the analyst, is that its traffic and revenue depends on its affiliates.
Going 4 gold
Recent news for Go2Net includes its September 20 announcement that it
hired Casey Long as managing director of international business, and that the
company intends to focus on international development.
Prudential Securities' Michael F. Legg and Santosh Rao initiated coverage of
the company with an ACCUMULATE rating and a $90 price target in a
September 16 report. Go2Net, which focuses primarily on finance, business
services, games, and online search and directory, had 11.2 million unique
visitors in July, say the Prudential analysts, making it the ninth most visited
site on the web. Furthermore, the company has been profitable for the last
two quarters, and has spent as little as $5.2 million in sales and marketing
since January 1998.
To date, Go2Net has acquired 10 companies, which have been focused on the
company's four core niches. Paul Allen, Microsoft Corp.'s (MSFT: research,
earnings) co-founder and head of Vulcan Ventures, recently invested $430
million in Go2Net and now owns approximately 30% of the company, say
Legg and Rao.
"This alignment with Vulcan provides substantial opportunity for GNET to
capitalize on broadband initiatives," the analysts say. They believe Vulcan is
poised "to rollout a significant broadband Internet effort." Also, Vulcan's
relationships with other Internet players, such as Stamps.com Inc. (STMP:
research, earnings), Beyond.com Corp. (BYND: research, earnings),
Netpodium, Mercata, CNET Inc. (CNET: research, earnings) and others could
be beneficial to Go2Net in the future.
The investment by Vulcan Ventures has left Go2Net with approximately $300
million in cash for acquisitions, the analysts estimate. Although competition
is intense, Go2Net's growth attests to its ability to deliver, say the analysts.
The company recently acquired Dogpile, Authorize.net, Haggle Online, Virtual
Avenue, and Hypermart.
Russell Horowitz, the company's current CEO, and John Kiester, the current
president, founded Go2Net in February 1996. The analysts believe the expert
management team will continue to gain strength with the addition of Michael
Riccio as COO. Management owns 20% of the company and the analysts
believe Vulcan's appointment of 2 board members "strengthens the strategic
direction of the company."
Revenue growth leader?
Lycos Inc., the third largest Internet portal and self-proclaimed
"fastest-growing" one was rated a NEUTRAL, HIGH RISK by Lanny Baker at
Salomon Smith Barney in a September 3 report.
"Although Lycos may be the fourth largest ad revenue machine in online
media?we maintain our neutral stance on the company's investment merits,"
Baker says. He asserts that Lycos' profitability lags behind the industry's
leaders, and is particularly concerned that its total operating costs per
thousand pages are over $7.50, while Yahoo! Inc.'s (YHOO: research,
earnings) costs are less than $3.50 per thousand pages.
Lycos reported a solid fiscal fourth quarter, says Baker, benefiting from the
Wired Digital acquisition. The company reported earnings of $0.01 per share,
but would have rated second in revenue growth behind Excite were it not for
the Wired Digital acquisition. Baker notes that determining revenue growth
leadership among the leading portals is "an exercise in hairsplitting more than
anything else" due to very close revenue growth rates.
Baker refutes the notion that Lycos is growing faster than the industry average
and gaining ad revenue market share. He points to Lycos' negative operating
income in the July 1999 quarter and says the company's $45 million in
quarterly revenue in the fourth quarter of fiscal 1999 is still below 0% on the
operating margin line. Lycos' fiscal 4Q revenue results did, however, surpass
Salomon Smith Barney's $40 million estimate for the quarter. But the $24
million the company spent on sales and marketing for the quarter was higher
than Baker expected.
"Lycos is currently trading at 31 times trailing 12-month revenue, while Yahoo!
is closer to 110 times trailing 12-month revenue. However, we believe Lycos'
lower revenue multiple appropriately reflects the company's weak profitability."
Research reports mentioned in this article:
U.S. Bancorp Piper Jaffray's September 10 report on InfoSpace
Prudential Securities' September 16 report on Go2Net
Salomon Smith Barney's September 3 report on Lycos
Companies mentioned in this article:
InfoSpace.com Inc. (INSP: research, earnings)
Sprint PCS (PCS:research,earnings)
Delphi Information Systems Inc. (DLPH: research, earnings)
Net2Phone (NTOP: research, earnings)
Go2Net (GNET: research, earnings)
Microsoft Corp. (MSFT: research, earnings)
Stamps.com Inc. (STMP: research, earnings)
Beyond.com Corp. (BYND: research, earnings)
CNET Inc. (CNET:research, earnings)
Lycos Inc. (LCOS: research, earnings)
Yahoo! Inc.'s (YHOO: research, earnings)
Excite@Home (ATHM: research, earnings)
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