Susan you picked a good one NTCR profits & growth!
NetCreations
Provide Internet-based opt-in email direct marketing services that enable
direct marketers to target promotional campaigns to consumers who have given
their permission to receive email messages in any of over 3,000 topical
categories. Our technology allows real-time, online email address selection and
ordering by direct marketers, as well as response-tracking. We have, as of
September 30, 1999, over 4.3 million email addresses in our database, which is
currently growing at the average net rate of more than 20,000 email addresses
per day.
Through our WWW.POSTMASTERDIRECT.COM Web site and through third-party Web
sites whose email address lists we manage, we have collected the email addresses
in our database from consumers who have elected to receive promotional email
messages, and have not subsequently opted out. We refer to these third-party Web
sites and our own Web site as our NetCreations Network because they provide us
email addresses for our database. We charge direct marketers a fee each time we
send marketing materials on their behalf to an email address they have selected
from our database. We pay a percentage of that fee to the third-party Web sites
in our network each time an email address they own is used for a particular
email marketing campaign. We generate substantially all of our revenues from the
fees obtained from our direct marketing customers.
There are currently over 175 third-party Web sites in the NetCreations
Network, including sites such as Internet.com, NetZero, Entrepreneur Magazine,
CMPnet, LinkExchange, CDROM Guide, Regards.com and Volition. On November 3,
1999, we entered into an email list management agreement with ICQ, Inc., an
instant messaging subsidiary of America Online, Inc., to be the newest
third-party Web site in the NetCreations Network. Each Web site in the
NetCreations Network accumulates email addresses by placing a sign-up template
on one or more of its Web pages which allows consumers to elect to receive email
pertaining to a selection of topical categories. We believe that the aggregation
of topically targeted, opt-in email addresses collected from third-party Web
sites is an element of the attractiveness of our services to direct marketers.
As of September 30, 1999, we have sent email messages on behalf of more than
1,500 direct marketers. Our direct marketing customers range from large
companies, such as Dell, Compaq, Ziff-Davis and J. Crew, to small retailers
selling items over the Internet, such as Vermont Nutrition, Cyberswap, Inc.,
Technology Marketing Corp., and Intratech Alliance Corp. We also sell use of
email addresses in our database to email address list brokers for use by their
direct marketing customers. For the years ended December 31, 1996, 1997 and
1998, we generated net revenues of $476,000, $1.1 million and $3.4 million,
respectively, and during those same periods we generated a net loss of $9,000 in
1996 and net income of $260,000 and $606,000 in 1997 and 1998, respectively. For
the nine months ended September 30, 1999, we delivered approximately 68 million
email messages in email marketing campaigns for our customers using email
addresses in our database, which generated over 95% of our net revenues for the
period. During that period, we generated net revenues of $10.2 million and net
income of $2.6 million, as compared with net revenues of $2.1 million and net
income of $357,000 for the nine months ended September 30, 1998.
At September 30, 1999, we had $275,000 of outstanding borrowings under a
line of credit and no other borrowings, although we did have capital lease
obligations of $202,510. However, pursuant to the agreement with ICQ, Inc., we
incurred an obligation to advance to ICQ, Inc. $5.0 million, constituting a
portion of the fees that ICQ, Inc. expects to earn under the agreement.
$1 million of those advances was paid on signing. An additional $2.0 million is
payable on consummation of this offering. The remaining $2.0 million is payable
in installments over time. We are entitled to take credit for the
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advances against fees due to ICQ, Inc. under the email address list management
agreement. If the agreement terminates before May 3, 2000, all of the advances
other than the first $1.0 million will be refunded to us. The remaining
$4.0 million of the advances will also become non-refundable with the passage of
time. In connection with paying the first advance, we borrowed $1.0 million
under our line of credit.
MARKET OPPORTUNITY
The Direct Marketing Association, or DMA, estimates that approximately
$221.5 billion will be spent on direct marketing in the United States in 2003.
Direct marketing includes postal direct mail, credit card offers and other
solicitations that encourage consumers to buy products or services.
The emergence of the Internet as a global communication and commerce medium
has led traditional and e-commerce businesses to direct increasing portions of
their marketing budgets to the Internet. Forrester Research projects that
worldwide Internet advertising expenditures are expected to reach $24.1 billion
in 2003. Currently, the most popular form of Internet advertising is banner
advertising. We believe that, while banners provide marketers with the ability
to reach broad audiences and establish brand awareness, banners have proven less
than effective as vehicles for generating consumer response. Forrester Research
reports that response rates, or click-throughs, from banner advertising averaged
approximately 0.7% as of March 1999.
Businesses seek to maximize the impact of their advertising campaigns.
Drawbacks to traditional direct mail include the high costs involved, the delay
in response and the difficulty in tracking responses. Banner advertising is not
cost-effective because of the relatively low click-through rate it generates.
Finally, unsolicited email advertising is not desirable because of privacy
concerns and potential damage to marketers' reputations.
OUR BUSINESS
Our opt-in email direct marketing business offers direct marketers three key
advantages over postal direct marketing and banner advertising:
- SPEED. Opt-in email campaigns can be sent out immediately and generate
results in a shorter period of time than direct mail or banner
advertising.
- RESPONSIVENESS. We believe that opt-in email campaigns typically generate
response rates ranging from 5% to 15%, although Forrester Research
estimates that opt-in email campaigns generated average response rates of
18% as of March 1999. This greatly exceeds the typical banner advertising
response rate of 0.7% and typical postal direct mail response rates, which
we believe to be approximately 2%.
- COST. Forrester Research estimates that opt-in email marketing campaigns
typically cost 25% to 75% less than postal direct mail campaigns.
OUR STRATEGY
Our goal is to become the leader in opt-in direct marketing on the Internet.
The key elements of our strategy include:
- maintain and extend market leadership in opt-in email direct marketing;
- enrich our database with opt-in transaction data;
- develop new Internet marketing products and services;
- expand our sales channels; and
- leverage our scaleable technology platform. |
