Hambrecht & Quist Research Report
October 25, 1999 - 8:32am
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Company: @Home Corporation Price: 39.06 Recommendation: Buy Notes: a, b, f
Date: 10/25/99
Excite@Home to Acquire bluemountainarts.com
* This morning, Excite@Home announced plans to acquire bluemountainarts.com for $780 million in cash and stock.
* Management will host a conference call at 12:00 PM ET (9:00 AM PT). The call-in number is (212) 896-6173.
* The acquisition should boost Excite@Home's reach by roughly 10% and should provide the company with significant new revenue opportunities.
* We are raising our 2000 revenue estimate to $801 million, from $777 million. Our 2000 EPS estimate remains $0.13. The company should experience more substantial revenue and EPS upside in future years.
* We believe the acquisition demonstrates the company's commitment to its online media business. Our rating remains Buy.
1998 A 1999 E 2000 E Q1 REVS $NA $78.7a $151.8 Q2 REVS NA 100.4a 189.0 Q3 REVS NA 112.6a 212.7 Q4 REVS NA 128.1 247.8 FY EPS NA $(0.04) $0.13 FY REVS (M) NA $419.9 $801.3 CY EPS NA $(0.04) $0.13 CY P/E NM NM NM
FY Ends Dec Current Price $39.06 52-Week Range $99-19 Market Cap (M) $17,305 Shares Out (M) 443,000
bluemountainarts.com Acquisition This morning, Excite@Home announced plans to acquire bluemountainarts.com, the free e-greeting card division of Blue Mountain Arts. Upon closing, which should come in mid-December, Excite@Home will pay $780 million in cash and stock. The cash portion of the deal is $350 million, with the remaining $430 million comprised of stock (roughly 11 million shares). Should bluemountainarts.com meet certain viewership, revenue and other goals, Excite@Home could be required to pay as much as an additional $300 million in stock.
According to Media Metrix, bluemountainarts.com attracted almost 9.2 million unique visitors in September 1999, for reach of roughly 15%, making it the 14th most popular online media property. Excite@Home's viewership in September was over 15 million, for reach of roughly 25%. Accounting for overlap, we believe Excite@Home's unduplicated viewership could climb to over 20 million for reach of 35%. In addition to enhancing viewership and reach, the pending acquisition should provide Excite@Home with significant new revenue opportunities. Currently, bluemountainarts.com generates essentially zero revenue, but we expect Excite@Home to capitalize on bluemountainarts.com's popularity to generate revenue in three ways:
*advertising on the bluemountainarts.com Web site,
*cross promotion of the Excite@Home media properties on bluemountainarts.com, and
*promotion of the Excite@Home broadband service through bluemountainarts.com
We expect the acquisition to have little effect on 4Q99. For 2000, we are raising our revenue estimate to $801 million, from $777 million. Our EPS estimate remains the same at $0.13. We have raised our 2001 and 2002 revenue estimates to $1.4 billion and $2.2 billion from $1.3 billion and $2.0 billion previously, and have made moderate upward revisions to 2001 and 2002 earnings.
1Q00 2Q00 3Q00 4Q00 2000 Revenue Old 149,896 185,481 205,273 236,011 776,661 New $151,789 $189,045 $212,691 $247,800 $801,325 EPS Old $0.01 $0.03 $0.04 $0.05 $0.13 New $0.01 $0.03 $0.04 $0.05 $0.13
Source: Company reports and H&Q.
The $780 million purchase price represents roughly $85 per unique visitor and $3 per average daily pageview. Perhaps the most similar transaction was AOL's acquisition of ICQ creator Mirabilis in 1998. Similar to bluemountainarts.com, ICQ generated essentially zero revenue when it was acquired. In June 1998, AOL paid $287 million in cash for Mirabilis or $77 per unique visitor and roughly $3 per average daily pageview. Furthermore, our analysis suggests that horizontal portals trade at almost $400 per unique visitor (on average) while vertical portals trade at roughly $170 per unique visitor. Comparing the bluemountainarts.com acquisition to other online media acquisitions, Yahoo! acquired Broadcast.com and GeoCities for $650 and $225 per unique visitor and $85 and $15 per average daily pageview. Consequently, we consider Excite@Home's price tag for bluemountainarts.com reasonable.
Property Market Cap. Unique Visitors Value/Unique Visitor
bluemountainarts.com $780 9,155 $85
Horizontals: Yahoo! $52,778 38,404 Lycos 5,029 27,619 Go2Net 1,595 9,817 LookSmart 2,375 9,256 About.com 757 8,431 GoTo.com 2,313 7,316 InfoSpace 2,863 5,312 Ask Jeeves 2,220 4,076 Theglobe.com 305 3,083 Average
Verticals: ZDNet $1,603 8,636 Sportsline USA 696 4,655 iVillage 719 4,289 Average
Source: Company reports, Media Metrix, H&Q.
Conclusion Excite@Home is the largest provider of consumer broadband Internet service. In late May, the broadband ISP merged with Internet portal Excite, giving the combined company two components of what could become a complete, next- generation consumer online service. Leo Hindery's recent departure from AT&T has mitigated some concern regarding the telecom giant's commitment to Excite@Home. While Excite@Home shares could experience pressure related to the open cable debate, we believe that by the time these regulatory and market issues are resolved, the company will have garnered enough market share and market power to establish it as one of the leading operators in the consumer online service space. Furthermore, with its broadband infrastructure and existing relationships with the cable operators, Excite@Home could become a broadband supplier to other Internet service providers. We believe the pending purchase of bluemountainarts.com demonstrates Excite@Home's commitment to its online media business. Moreover, we expect the company to continue to grow the media business through internal means as well as through strategic acquisitions. Our rating remains Buy.
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