BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
keith@rsco.com
September 11, 1998
The Web Report #37
MARKET PRESSURES CONTINUE: We are somewhat discouraged by further bad
news from Washington D.C.. Regardless, we expect Web traffic will jump
dramatically if the Starr report is made available on the Web. We are
confused as to whether or not impeachment would be perceived as good or
bad by investors. In addition, foreign economic signs have continued to
point downward, inciting fears of domestic economic pressure. However,
we continue to believe much of the damage has been done to our financial
markets.
The ISDEX closed at 92.99 on Thursday this week, down 1% from last
week's close of 94.07, but up about 7% from its most recent low of 87.01
on August 31. The ISDEX is still 40% down from its most recent high in
mid-July. The NASDAQ was basically flat from the end of last week.
We believe it is reasonable to expect some stability in stock prices
over the next month or so. At that stage, we would expect technology
stocks, particularly Internet stocks, to recover and outperform the
averages.
AOL: AOL remains at the top of our list to accumulate during this
turmoil. We believe AOL is on track to beat our Q1 EPS estimate of
$0.22. While subscriber growth seems seasonally slow, we still expect
net domestic additions to be in a range of 750,000 to 800,000
subscribers. We expect to see a continued increase in subscription,
advertising and commerce revenue per subscriber, which we believe will
enable the company to beat our estimates. We believe AOL continues to
generate more revenue per customer than any other Internet company.
SPORTSLINE: We believe SportsLine's business remains strong, in terms
of both traffic and advertising revenue. We expect the company's CBS
promotion plus its own new television show should help traffic increase
in the fall. We are not overly concerned by ESPN's recent upgrade of
its service, or by Fox Online's media buy on Yahoo! We continue to
believe there is room for multiple competitors in the sports category on
the Internet. Still, we believe that SportsLine has the opportunity to
emerge as the leader, although it is currently roughly tied or slightly
behind ESPN.
The stock has been more volatile than the group in recent weeks. There
have been concerns about potential overhang from the company's shelf
registration, which was announced last week and which should become
effective shortly. However, registering doesn't mean individuals will
immediately sell their shares, although it does give them the option to
sell at their discretion. The company registered 1.8 million shares,
including approximately 675,000 for the acquisition of GolfWeb,
approximately 47,000 shares for the acquisition of International Golf
Outlet and just under 1.1 million shares issued, or exercisable upon the
exercise of warrants to various athletes, consultants, advisors and
other content providers. We are encouraged by the fact that CBS and
Kleiner Perkins have not yet chosen to register their shares. There is
also some risk that the company may need to settle a lawsuit regarding
the rights to the SportsLine name; however, we would not be surprised if
the company decided to settle, and if so, we would expect the cost to be
modest. We believe these concerns have already been reflected in the
current stock price. We believe there will be positive catalysts for
the stock, including the potential announcement of an expanded deal with
AOL, within the next couple of weeks.
E*TRADE: This week marked the public launch of Destination E*Trade.
Investors can now access the new improved site at www.etrade.com.
E*Trade also announced the signing on of its 500,000th active account,
up from 459,000 at the end of June. We believe the company is on track
to meet our estimate of 527,000 active accounts by the end of
September. Destination E*Trade allows visitors to register for
financial information without opening a trading account. Registrations
have already exceeded 35,000 people over the first 2 weeks, with roughly
2% upgrading to trading accounts.
Also announced this week, E*Trade outlined plans to spend over $100
million over the next 12 months on promotion for the Destination E*Trade
site. The marketing campaign will encompass broadcast, print and online
media, as well as television spots, which began airing this week. We
continue to find the risk/reward of the stock compelling at the current
price of $19 5/16, the market cap of the stock is approximately $1.1
billion, of which over $600 million, or almost $10 per share is in
cash. We believe the replacement cost of the technology and the
marketing cost associated with the existing 500,000 customers is
significantly higher than the current market capitalization. We believe
that E*Trade's enhanced service will attract customers from full-service
brokerage firms. Previously, we estimated that most of E*Trade's
accounts have come form traditional discount brokers and new money
invested in the market. We believe the stock will react favorably to
any signs near term of positive media and consumer reaction resulting in
accelerating account growth.
NETGRAVITY: We believe NetGravity remains a critical component in
helping advertisers better target the Web audience and that research
using this kind of data will encourage significant increases in
advertising budgets in 1999 and beyond. Earlier this week, NetGravity
announced the release of AdServer 3.5, which allows for more targeted
online marketing solutions. The enhanced software contains several new
features including intelligent geographic targeting, further advanced
reporting capabilities, and significant usability and performance
enhancements. We are encouraged by management's execution abilities as
demonstrated by this timely release.
DIGITAL RIVER: We initiated coverage of Digital River this week, with a
recommendation rating of Buy. Digital River provides a complete
outsourcing solution to software publishers and online retailers seeking
to sell software online. Digital River's services include Web store
hosting, electronic software delivery (ESD) and physical delivery,
transaction processing, 24x7 customer service, data mining and
merchandising services. The company takes a piece of the
distributor/retail share of profits while still allowing the publisher
to increase operating profits and leaving more margin room for online
retailers than brick and mortar retailers. At the end of June, the
company had contracts with 1,122 software publishers and 346 contracts
with online retailers. Over 750 transactions occur per day already. We
expect Digital River's growth will be a function of new clients and more
volume through those clients as revenues shift from the physical retail
world to the digital retail world. We view Digital River as one of the
emerging Internet e-business franchises and believe the company has
built a leadership position, through its first-mover advantage and
robust technology. Our price target of $15 is based on a 50 multiple of
our C2002 EPS estimate of $0.30.
THE BIG PICTURE: This week the market capitalization of the 50
companies in the ISDEX index is approximately $65 billion, with total
trailing sales of almost $7.2 billion, suggesting a revenue multiple of
9 times. This compares to the top 20 media companies, which have a
combined market capitalization of approximately $365.6 billion, compared
to total trailing 12-month revenues of about $174.1 billion, for a
multiple of almost 2.1 times.
Rating 9/10 9/3 1-Wk 52-Wk Chg Price
Chg High 52Wk Hi Target
9/3- to 9/10
9/10 Price
Amazon AMZN BUY 79 5/8 85 7/8 -7% $147 -45.8% $46
Am Online AOL SBUY 95 7/8 86 3/4 11% $140 1/2 -31.8% $124
CNET CNWK SBUY 36 7/8 41 1/4 -11% $74 1/2 -50.5% $68
Dig.River DRIV BUY 6 6 1/4 -3% $13 1/4 -54.2% $15
E*Trade EGRP SBUY 19 1/3 18 1/4 6% $47 7/8 -59.7% $51
Excite XCIT BUY 28 1/4 25 1/2 11% $55 1/2 -49.1% $46
Getty GETY SBUY 14 7/8 14 4/7 2% $28 1/4 -47.3% $40
Lycos LCOS BUY 26 4/7 25 1/3 5% $53 5/8 -50.5% $44
NetGravity NETG BUY 9 4/9 8 3/8 13% $32 1/2 -71.0% $38
NewsEdge NEWZ LTA 7 1/2 7 7% $19 3/4 -62.0% $18
N2K NTKI LTA 7 7/8 8 1/4 -5% $34 5/8 -77.3% $18
Onsale ONSL BUY 17 7/8 17 1/8 4% $36 4/5 -51.4% $51
Prv.Travel PTVL BUY 14 7/8 18 5/8 -20% $44 -66.2% $43
Infoseek SEEK LTA 20 7/8 17 1/8 22% $45 -53.6% $30
SportsLine SPLN SBUY 13 22 -41% $39 5/8 -67.2% $61
Yahoo! YHOO BUY 79 7/8 75 1/5 6% $103 3/4 -23.0% $64
Internet Stock
Index ISDEX $ 92.99 $ 94.07 -1% N/A -9.8%(1) N/A
NASDAQ Composite
Index COMQ $1585.33 $1571.86 1% N/A -3.3%(1) N/A
(1) Change based on last 12-month's performance.
Source: AT Financial and BancBoston Robertson Stephens estimates.
ISDEX, The Internet Stock Index, is a trademark owned by Mecklermedia
(NASDAQ:MECK), used by permission.
To improve the alignment of the table:
1. Highlight the data.
2. Go to the Format menu and choose "Font"
3. Choose "Courier" and press "OK".
BancBoston Robertson Stephens maintains a market in the shares of
Amazon, CNET, Digital River, E*Trade, Excite, Getty, Lycos, NetGravity,
NewsEdge,N2K, Onsale, Preview Travel, Infoseek, SportsLine USA, Yahoo!
and has been a managing or comanaging underwriter for or has privately
placed securities of Digital River, E*Trade, Excite, Onsale, and
SportsLine USA within the past three years.
FOR ADDITIONAL INFORMATION, PLEASE CALL YOUR BANCBOSTON ROBERTSON
STEPHENS REPRESENTATIVE AT (415) 781-9700.
The information contained herein is not a complete analysis of every
material fact respecting any company, industry or security. Although
opinions and estimates expressed herein reflect the current judgment of
BancBoston Robertson Stephens, the information upon which such opinions
and estimates are based is not necessarily updated on a regular basis;
when it is, the date of the change in estimate will be noted. In
addition, opinions and estimates are subject to change without notice.
This Report contains forward-looking statements, which involve risks and
uncertainties. Actual results may differ significantly from the results
described in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in
"Investment Risks." BancBoston Robertson Stephens from time to time
performs corporate finance or other services for some companies
described herein and may occasionally possess material, nonpublic
information regarding such companies. This information is not used in
the preparation of the opinions and estimates herein. While the
information contained in this Report and the opinions contained herein
are based on sources believed to be reliable, BancBoston Robertson
Stephens has not independently verified the facts, assumptions and
estimates contained in this Report. Accordingly, no representation or
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Copyright * 1998 BancBoston Robertson Stephens Inc. |
