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

To: Obewon who wrote (12395)	9/27/1999 2:38:00 AM
From: Jeff Dryer	Read Replies (4) \| Respond to of 28311

Obewon, Don't you agree that some companies have more acquisition value than others and therefore deserve higher market caps than standard income projections would imply? Did you find Cisco's acquisition of Cerent for $6.9 billion to be somewhat startling? Here is part of a post from the SI Cisco thread about Cisco/Cerent: "In the end, it seemed no price would dissuade Chambers. On Aug. 26, Cisco agreed to pay a staggering $6.9 billion in stock for Cerent, even though the two-year-old startup has sold only $10 million in gear. The hypercompetitive Chambers simply would not go away. Convinced that Cerent's technology is critical for linking the Internet and telephone-system worlds, he restarted talks 10 weeks after first meeting Russo." Additional thoughts... (and I'm not saying this will happen) Go2Net has the potential to be very profitable. If Go2Net were to generate $29 million in net income two years from now, then at current stock price, Go2Net would sell for a 100 P/E... a pretty reasonable P/E relative to growth rate. Two years from now, it's possible Go2Net will get one advertising contract that all by itself will be worth $29 million per year... and that most of the revenue from this contract will then fall to the bottom line. $29 million is not a lot of money in the advertising world. CNET just initiated a $100 million ad campaign. Some companies spend more than a billion a year on advertising. "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." Yes. However, in this summers Internet meltdown, wouldn't you agree that Go2Net did better than most Internet companies? Companies like Yahoo, eBay, and Amazon actually fell more from their 52 week highs than Go2Net did. Some Internet companies such as iVillage fell 80% from highs. "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." You seem to be predicting very low profit margins for Go2Net. If Go2Net is a thriving Internet survivor long-term, I would expect net income margins to be in the 25% plus range. If Go2Net generates $500 million per year in revenue several years from now, at a 25% net profit margin, Go2Net would have $125 million in net income for the year. At a 75 P/E, Go2Net would be valued at $9.38 billion or about 3 times its current value. When might Go2Net reach $500 million in revenue per year? Let's assume Go2Net can generate $50 million in revenue next year (and the year begins Jan. 1, 2000) and assume Go2Net can increase revenue by 75% each year thereafter, how many years will it take to get to $500 million in revenue per year (Year 2000 being the first year)? Approximately 5 years. "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. How does one determine the real risk of an investment? If you listen to Morgan Stanley, Go2Net is really really really risky and should fall from $70 to less than $10... that's a pretty drastic decline. Investors who know Go2Net better might perceive the risk of investing in Go2Net to be much less. And company insiders (including Paul Allen) might know what the real risks of Go2Net are best of all. It is possible that Go2Net will never fall below $45 per share again. (All of my statements above are thoughts put forward to continue the exchange of ideas and are not put forth as my predictions of what will happen. Above statements assume no additional shares outstanding. However, there will be more share dilution). Yes. Brad is married! and working again!