SSCP report:
Research Investment Group, Inc. Initiates Investment Coverage Of Stereoscape.com, Inc. (OTC-BB: SSCP)
With A Six Month Price Target of $4
With a float of one million shares, Stereoscape.com, Inc. (trading symbol "SSCP"), may be one of the best-kept secrets on the OTC-BB.
The company is projecting sales for the current fiscal year to reach $7.5 million with a gross profit of $1.9 million (about $0.46 per share). Not bad for a fully-reporting company in a $14 billion industry that is growing at 20% per year.
Incorporated in 1997, stereoscape.com (www.stereoscape.com ), through its subsidiaries Alpha Sound & Vision, Inc. (www.alphasound.com ) and American Buyers Club International, Inc. (www.abcstereo.com ), sells high-end audio, video and home theatre equipment on the Internet and at its retail store. All orders are paid for by check or credit card at the time of shipment. There is no financing offered - SSCP's business is strictly a "cash and carry operation".
Stereoscape.com offers a wide range of name brand products listed at several different price points, with a greater product depth at higher price levels than most of its competitors. SSCP currently offers several hundred products, including all of the top brands of home theatre and related electronic equipment brands (JVC, Sony, Yamaha, Denon, Krix, Klipsch, Thornberg, etc.). Although SSCP's subsidiaries sell through different media, the majority of the products that they sell are identical. The company's retail store provides custom design and installation services for all of its home theatre products.
SSCP derives its revenues from the sale of home theatre systems and individual components to customers on a call-in basis and via the Internet. Presently, sales are being generated about equally from leads generated through the Internet and traditional print / radio advertising, although by years-end, SSCP anticipates that the majority of its sales will be Internet-driven.
Stereoscape.com recently announced major changes to its management team as part of its on-going effort to implement its growth strategy.
Mario Bassani, SSCP's new Chairman & CEO stated that "we are currently exploring various avenues for growth, including expanding our Internet presence, increasing advertising for our retail store, importing and distributing new product lines, and several key acquisitions. We are confident that the Company will succeed in realizing many of the above growth opportunities."
Stereoscape.com LAUNCHES Yahoo! STORE
SSCP's website recently underwent a major upgrade in conjunction with stereoscape.com's announcement of its new Yahoo! e-commerce store.
The new Stereoscape.com website boasts detailed product descriptions, shopping cart style checkout, lightening fast order processing, and is database-driven.
The Yahoo! store has the capacity to process huge quantities of orders, and will accommodate SSCP's projected growth over the next several years. The enhanced website allows customers to make informative buying decisions, without the hassle of searching the web for product information.
Expectations are that this new relationship with Yahoo! should dramatically increase traffic and sales for SSCP. By years-end, Stereoscape.com expects to be generating the majority of its sales leads through the Internet.
HOME THEATRES - A $14 BILLION INDUSTRY THAT'S GROWING AT ABOUT 20% PER YEAR!!
Fueled by technological advances and the booming U.S. economy, the home theatre market is growing at a rapid rate. Total sales in the U.S. are expected to reach $14 billion in 2001 - a 133% increase over the $6 billion sales figure reported in 1996.
An increasing number of people are putting home theatre systems into their homes. At the same time, society has come to accept home theatres as being a part of everyday living, rather than a luxury.
According to research conducted by Hachette magazines (publishers of Stereo Review), the most sophisticated buyers of home theatre systems are typically college educated men, 38 years old, having household incomes of more than $65,000. Stereoscape.com targets these same buyers: upper middle class consumers, employed in professional or in upper middle management positions, and who currently uses home theatre systems for entertainment.
The major trend in the home theatre industry has been the development of major technology breakthroughs (S-VHS VCR's, satellite dishes, DVD's, digital programming, etc.) and hence obsolescence, which constantly refreshes the market.
Presently, the area of greatest growth is in the satellite dish and signal decoder sub-section of the market. Customers who order this cutting edge equipment many times can be convinced that the remainder of their home theatre system needs upgrading, generating increased sales.
A typical home theatre set-up costs between $3,000 and $5,000. Industry sources estimate that about 13.5 million homes currently have at least a basic home theatre system. About 90% of home theatre owners bought their equipment over a period of time - usually about 18 months - and about 7 in 10 home theatre owners install their systems themselves
As with other consumer electronic products, an increasing number of buyers are turning to the Internet to find the best selection and prices on home theatre equipment.
THERE'S LITTLE COMPETITION IN THE HIGH-END RETAIL HOME THEATRE BUSINESS.
Interestingly, SSCP competes with only about ten other companies (including 6th Avenue Electronics, JR Music World and Sound City) in the market for Internet / mail order sales and distribution of discounted, high-end, home theatre systems.
Consumers know that they can buy nationally-branded merchandise at significant discounts. They realize that home theatre equipment they are buying is easy to install, but that the mass-merchandisers and category killers (Circuit City, Best Buy, etc) offer little in the way of system design.
With industry forecasts projecting sales of high-end home theatre systems growing to become a $2 billion market by 2005, we believe that Stereoscape.com has an opportunity to position itself as a significant retailer in this area.
Right now, there is not a whole lot that differentiates SSCP and its competitors. They all offer discounts from the manufacturer suggested retail prices.
The biggest advantage that SSCP's competitors have is greater name recognition and larger, on-going advertising programs. Proceeds from a financing that Stereoscape.com is working on will be used to increase Internet advertising and correct this weakness.
In the long run, SSCP believes that its higher levels of client services - particularly, designing custom home theatres - will give Stereoscape.com a major advantage over its competitors, which compete on price only.
Interestingly, compared to its competitors, Stereoscape.com's prices are significantly lower: about 15% less than other brick and mortar retailers, and up to 5% below other mail order discounters. SSCP maintains that it can sell at these low prices (and still turn a profit) due to its low overhead and excellent purchasing relationships.
SSCP HAS A ROBUST BALANCE SHEET & A BULLISH FORECAST FOR FY 2000
Stereoscape.com, Inc.'s 10-K Report indicates that sales for the year ending December 31, 1999 increased by 30% to $4,112,324 from $3.16 million the year before. Gross profits for fiscal 1999 increased 27% to $822,698 from $649,000 the year before.
We are encouraged that gross profits are running at about 20% of net sales, and that the company has been profitable in each of the three years it has been in business.
While profits are running below the roughly 30% profit range that SSCP's more-established and larger competitors are reporting, we feel that stereoscape.com's numbers are consistent with a young company that is rapidly making the transition from an traditional bricks and mortar seller of high-end products, to an aggressive e-tailer.
SSCP indicates that revenue projections for the current fiscal year 2000 (assuming completion of a small external financing) are about $7.5 million, increasing to $10 million in FY 2001. Gross profits for this year and next year are estimated by SSCP at $1.9 and $2.5 million ($0.46 and $0.61 per share), respectively.
SSCP's strong growth projections (w/external financing) are consistent with their transition to becoming principally an e-tailer. Until mid-1999, the company had only marketed its products through traditional print media advertising and non e-commerce web sites (alphasound.com, stereoabc.com & abcstereo.com). Stereoscape.com is expecting tremendous growth as it directs its business towards revenues derived from its fully-integrated e-commerce web site.
WHAT'S A REASONABLE VALUATION FOR Stereoscape.com??
Over the past three years, SSCP's gross sales and profits have grown strongly, increasing from $2.1 million ($0.5 million profit) in 1997 to $4.1 million in sales and an $800,000 profit in 1999.
According to the company's business plan, SSCP estimates sales of $7.5 million this year, with a projected net profit of $1.9 million (about 46 cents per share).
Unreasonable?
We don't think so.
SSCP has demonstrated strong growth (and profitability) over the past three years, which is in line with the surge in home theatre system sales nationwide over the same period. 1999 was the first year that stereoscape.com and its subsidiaries had any sort of Internet presence. The company is rapidly shifting its sales and marketing focus towards the net, and by the end of this year, expects to be generating the majority of its sales leads through the Internet.
With only 4.1 million shares outstanding, FY 2000's estimated profit of $1.9 million represents about 46 cents per share in earnings (FY 2001 profits estimated at $2.5 million or about 61 cents per share). At the worst, if Stereoscape.com turns in the same performance this year as they did last year, that's still a profit of about 20 cents per share!
SSCP's competitors are currently trading at about 10x multiples. At the extreme end of the spectrum, category-killer retail electronics stores like Circuit City have P/E multiples of about 20x.
We believe that with increased investor and market awareness, an 8x to 10x multiple on projected FY 2000 earnings would be reasonable for SSCP.
So, assuming that SSCP has five million shares outstanding after completing its next financing, these valuation multiples would suggest a target price of between $3 and $3.80 per share for stereoscape.com.
SSCP SHARE STRUCTURE & RECENT TRADING RANGE
Total Shares Outstanding (April 17, 2000): 4.1 million
Public Float: Est'd @ 1,000,000
52-week Trading Range: $0.28 by $8.75
Last Trade (July 7, 2000): $1.25
Stereoscape.com's officers and directors own about 61% of the company's stock. All but about one million shares are restricted. As of March 3, 2000 there were 31 shareholders of record for SSCP's stock.
Stereoscape.com, Inc. is a fully-reporting company. All of SSCP's filings are available for viewing at www.edgar.com. The company's 10-K Report for the year ending December 31, 1999 can be viewed at: sec.gov
For investors seeking independent information on IMTL, there is a very active discussion thread on RagingBull ( www.ragingbull.com/mboard/boards.cgi?board=SSCP ).
Sterepscape.com is beginning to attract the attention of analysts. SSCP was recently featured by
TheSubway.com and Capital Research Group, with both groups indicating near-term target prices in excess of $3 per share.
Sales for the first quarter of 2000 were reported by SSCP as $0.8 million, reflecting the extremely limited availability of high-end products from key manufacturers during the first two months of the quarter.
For additional information, please contact:
Mario Bassani - Chairman & CEO
Toll-Free: (800) 354 - 1324
DISCLAIMER - PLEASE READ
Research Investment Group. (the "Publisher") is not a Registered Investment Advisor or a Broker / Dealer. Readers are advised that this report is issued solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. Reproduction of this report, in whole or in part, by any means, electronic or otherwise, including via the Internet, without prior written permission, is strictly prohibited.
Research Investment Group has independently prepared this report, drawing upon a range of public news and information sources, as well as data and opinions provided by Stereoscape.com, Inc.. ("SSCP" or the "Company"). Prior to publication of this report, the Company reviewed and approved the contents hereof. The Publisher has not independently verified the Company's representations. Any opinions expressed in this report are statements of judgment as of the date of publication (January 16, 2000) and are subject to change without further notice, and may not necessarily be reprinted in future publications or elsewhere. Neither the Publisher nor its owners, employees or consultants accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. The information contained herein is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor.
The opinions and analysis included herein are based on sources believed by the Publisher to be reliable and in good faith but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. The foregoing discussion also contains forward-looking statements that are based on current expectations and differences can be expected. The information and opinions contained herein is not intended to be a complete discussion of information regarding some of the current and/or intended business activities of the Company, and all information contained in this report should be independently verified with the Company. Readers are urged to consult with independent financial advisors with respect to an investment in the shares mentioned herein. Investors should review a complete information package on the Company which should include, but not be limited to, the Company's annual report, quarterly report, press releases, as well as all regulatory filings.
In order to be in full compliance with the Securities Act of 1933, Section 17(b), the Publisher advises its readers that it has not received a fee as compensation for its efforts in researching, writing and presenting the information contained herein. *NOTE* A consultant from Research Investment Group (THE CEO) has signed an agreement with SSCP in a best efforts basis to raise the company (SSCP) a total of $1,000,000 for an up front fee of 150,000 free trading shares. The Publisher, its owners, employees and consultants may profit in the event the shares of the Company increase in value. These positions may be liquidated from time to time even after Publisher, its owners, employees and consultants have made positive comments regarding the Company.
THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. INVESTORS MUST ALSO INDEPENDENTLY VERIFY THE "BLUE SKY" ELEGIBILITY OF THE SECURITY MENTIONED IN THIS REPORT BEFORE MAKING ANY INVESTMENT DECISIONS. TIMING OF, AND ANY BUYING OR SELLING DECISIONS, ARE THE SOLE RESPONSIBILITY OF THE READER.
The Publisher encourages U.S. readers to review the investing information available with the Securities and Exchange Commission ("SEC") at sec.gov and/or the National Association of Securities Dealers ("NASD") at nasdr.com The NASD has published information on how to invest carefully at its website.
SCCP is a fully reporting company with the SEC; the Company's 10-K Report for the year ending December 31, 1999 can be viewed at: sec.gov
, although it expects to file its Form SB-1 in the near future. Additional SEC filings can be accessed at the SEC's EDGAR page freeedgar.com.
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