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Technology Stocks : InfoSpace (INSP): Where GNET went! -- Ignore unavailable to you. Want to Upgrade?

To: Jeff Dryer who wrote (12384)	9/25/1999 2:44:00 PM
From: Obewon	Read Replies (1) \| Respond to of 28311

Jeff, I think a five year model would probably be too short to really demonstrate the income potential of GNET. A ten year model would be more appropriate as your company's revenues are are going to need to rise into the billion dollar range to get enough cash flow to justify a $3B value using the income approach. Even if Go2Net's revenues double each year it will take time to get into the billions. The discount rate arguement I was making is that an average investor needs to generate a sufficient return to justify his investing money in a company. This return required is based on the amount of risk inherent in a company as well as the risk-free rate of the market. Now you mentioned and I can't dispute that the stock has appreciated tremendously since Oct 98, however, when using the income approach, the market value of a company's stock is meaningless. The income approach only deals with company free cash flows. A share of stock is just a bundle of rights which includes the right to participate in a company's cash flow distributions. Given that this is the case, it is the earnings growth of the company which is important since this indicates the ability of the company to make distribution (far in the future for most tech stocks) to shareholders. Predicting earnings growth is problematic at best when you're dealing with an immature industry in which 97% of all company's show significant losses and an immature company with little revenue (yet). As to whether GNET gets crushed along with the majority of the Internet sector, even you must conceed that Internet stocks pretty much move together. When a majority of the sector get whacked, the strong blue chip internet stocks (AOL, Ebay, Excite@Home, GNET, etc.) are going to initially be swept along with the tide (this summer's Internet stock meltdown is a good example of the herd mentality). They will rebound as they are fundamentally sound businesses but it will take time. I started to try and explain how the income approach works and to give an example of how it would apply to a company such as GNET but it was taking too long and I wasn't sure everyone would follow it so I deleted it. I also found out that I would need to project at least 10 years into the future to get to the point where present value of additional year's cash flows becomes relatively small. Obewon BTW I was under the mistaken assumption that Brad's wedding was early next month rather than earlier this month. Sorry.