CBS Marketwatch article - WEBX
cbs.marketwatch.com
Pricing in a big premium
By Bambi Francisco, CBS.MarketWatch.com
Last Update: 4:22 PM ET Sept. 25, 2001
SAN FRANCISCO (CBS.MW) -- Most companies that once commanded $1 billion market caps have fallen well below that threshold, so why is WebEx worth $960 million?
WebEx (WEBX: news, chart, profile), a service provider of live interactive business communication, saw shares jump as much as 10 percent to $25.55 Tuesday. In fact, the stock has run up 50 percent since it traded at $17 prior to the Sept. 11 attacks. Yet WebEx is expected to generate $78 million this year after posting $26 million last year. In 2002, sales are expected to grow to $144.6 million. On the bottom line, WebEx is expected to lose 46 cents per share this year.
To be sure, a lot of the buying may not be from investors seeking to hold on for a long time. "Since the upgrade, we believe the significant portion of the price increase is short covering," said Peter Martin, an analyst at Jefferies & Co., who upgraded the stock on Sept. 17.
"The stock will come back a bit until the quarter is reported," he said.
Indeed, stocks do eventually come down to earth as anyone who has been following the market would come to realize.
Exodus Communications (EXDS: news, chart, profile) collapsed 66 percent to 17 cents Tuesday on volume of 193 million shares traded amid concerns the company is set to file for bankruptcy. See previous Net Sense: Why bankruptcy can be a good thing.
Back to WebEx
WebEx has been a beneficiary of the terrorist attacks as companies consider ways to hold meetings or conferences without having to travel. Indeed, the company said "it's seen significant interest in its services as well as increased usage by its existing accounts," Martin said. The company has 4,000 customers, though Martin said he doesn't believe are all paying.
No doubt, there is interest. But interest doesn't always translate into revenue. It is still an environment where budgets are tight. For a small-sized company, WebEx charges a set-up fee of $2,000 and each computer or seat is charged a monthly fee of $120.
The question is, how many businesses will pay and therefore how many new accounts are priced into WebEx's stock?
More than likely, if WebEx has a product that's of interest, it won't be alone for long. Martin points out that there are a number of competitors including NetMeeting, owned by Microsoft (MSFT: news, chart, profile), Rain Dance Communications (RNDC: news, chart, profile) and LearnLinc, owned by Mentergy (MNTE: news, chart, profile). It's worth noting that NetMeeting is free, but can only support communications within a company's firewall. In the privately held sphere, there are HorizonLive, Interwise and Placeware.
Centra (CTRA: news, chart, profile), a leading provider of virtual classroom software, can also deliver services for Internet meetings.
While Martin believes WebEx stock at current levels is expensive, he does believe the company has a solid business. "It has a user-friendly interface; it has high-end telecom infrastructure (it uses Cisco Systems (CSCO: news, chart, profile) Turbo switch network); it doesn't hog too much bandwidth or memory on a computer; the price point in these times is reasonable."
So, how does Jefferies & Co. use the service? It doesn't.
********* |
