Correction...62% from ads, but looking to reduce it to 50%
from CHTR thread -
Date :01/11/2000
Copyright :Investor?s Business Daily
Title :GO2NET INC. / Seattle, Washington - Portal In Buying Mode, Still Manages A Profit
By Catherine Lacoursiere
Go2Net Inc. has become so adept at cobbling together promising online businesses and growing them that the company has created top-rated Internet sites.
Go2Net's skill lies in the ability to identify attractively priced, yet high-margin businesses. By leveraging its core technology and content, Go2Net gets them up, running and making money early.
All told, Go2Net invested $200 million in six new businesses in 1999. And it still managed to make it into the black.
"The company has demonstrated its success in execution. It can extend its reach and remain profitable at the same time," says analyst Jim Preissler of PaineWebber.
Hypermart, part of Go2Net's online small business center, was bought for $2 million in August 1998. Today the site attracts 800,000 users to its bundled business-to-business service offerings. It helps small to midsize businesses with such services as handling electronic commerce transactions, Web hosting and payroll processing.
More recent investments include e-mail provider Commtouch, messaging service Net2Phone and FreeYellow.com, which provides Web site-building tools and free hosting services.
Go2Net already is the envy of many Internet start-ups by achieving profitability. For the year ended Sept. 30, Go2Net reported net income of 24 cents a share, up from a 4-cent loss in 1998. Sales were $22 million, a 215% increase over the prior year.
First Call analysts project the company will earn 34 cents a share in 2000 and 47 cents a share in 2001. The company trades as GNET around 84.
Go2Net, however, has become a cog in a larger player's Web vision. In June, Paul Allen's Vulcan Ventures took a 34% stake in Go2Net, valued at $426 million. The Web portal has become a linchpin in the Microsoft co-founder's wired world convergence strategy.
In October, Go2Net announced a joint venture called Broadband Partners involving several of Allen's properties, including leading cable systems operator Charter Communications. RCN Corp. is also a partner. The venture will serve as the springboard for Allen's strategy to provide broadband portal services through televisions, personal computers and other devices.
Go2Net, which has a 19.9% stake in Broadband Partners, will provide portal services, content and technology to Charter Communications and RCN. Long term, Broadband hopes to sell the services to other cable operators.
"Broadband is the end game," said Russell Horowitz, Go2Net's chief executive and chief financial officer. By 2003, Jupiter Communications projects 15.3 million households will subscribe to broadband. Of that number, 7.7 million will be hooked up via cable modem, 6 million by digital subscriber line, or DSL, and the remainder via satellite or fixed wireless.
Go2Net will be competing with established players Excite AtHome and RoadRunner. So far, Excite AtHome has signed up 1.1 million subscribers. RoadRunner has signed up 500,000.
But Broadband Partners' strategy moves beyond the PC. Instead, it is focusing on becoming a leading interactive TV-based broadband portal. It also hopes its wide-scale deployment of TV set-top boxes will let it leapfrog over the competition. Jupiter Communications projects interactive TV could generate $10 billion in revenue by 2004.
Charter Communications plans to have set-top boxes on the market and customers signing up for its broadband service by late 2000. Pending the completion of acquisitions, Charter will be the No. 4 cable system operator in the country with more than 5 million customers.
Long term, though, the cable guys will be facing serious competition in the broadband space from telephone wires. For now the cable modem players have an advantage in the broadband market as the more fragmented DSL market struggles to keep pace.
"By 2004, we will see near parity between DSL and cable modems," said Dylan Brooks of Jupiter Communications.
Both Excite and RoadRunner have actively developed broadband content. But in the transition from narrowband to broadband, Go2Net lags, analysts say.
In other activity, Go2Net signed an agreement with Hasbro in December to help the games maker develop and run a gaming site known as games.com. In addition to licensing fees, Go2Net also expects to realize revenue from advertising, subscription fees and e-commerce.
"They will have a reasonably attractive stable of rich media games that will attract some broadband usage," said Jupiter's Brooks. But it is an improvement and not a silver bullet, Brooks says.
Longer term, deep pockets will help.
"Vulcan has the willingness to fund massive development efforts," said Go2Net's Horowitz who views video and games on demand as potentially large markets for broadband applications.
Meanwhile, Go2Net is strengthening its financial position. After 2000, Go2Net plans to reduce its revenue derived from cyclical advertising to 50%. Already, it has reduced its dependence on advertising revenue from 80% in 1998 to 62% while growing licensing, e-commerce and subscription revenue. |
