BANCAMERICA ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
keith_benjamin@rsco.com <mailto:keith_benjamin@rsco.com>
July 17, 1998
The Web Report #29
Reporting season continued to pick up the pace, with Excite reporting this
week and E*Trade, Preview Travel, SportsLine, Amazon, CNET, and N2K, among
the companies we follow, expected to report next week. We believe the
Excite story continues to make progress, as discussed below. We believe
that current price levels offer compelling opportunities to buy E*Trade
(EGRP $33-2/3), SportsLine (SPLN $31), and CNET (CNWK $50-5/8). These are
companies with valuations that do not reflect franchise status, which we
believe are deserved in each case. We see positive catalysts for each stock
near-term.
Excite reported solid revenue growth, but modest traffic growth of 10%
sequentially for the quarter. We are amazed by the marathon pace of
management in completing a multitude of deals to improve distribution,
content, commerce, ease-of-use, and advertising targeting technology.
Excite already differentiates itself by virtue of relatively high page views
per visitor and high revenues per page view, which we believe is a measure
of a superior service to consumers and to advertisers. Excite tries harder,
in our view. This is almost like the climax scene from Tin Cup. Excite
will definitely place in its Open Tournament, in our opinion. We believe it
clearly has made the extra effort with grand style. That leaves the
question of when, more than if, Excite will demonstrate brand momentum, in
terms of accelerating traffic and stabilizing marketing spending. We
believe it is bound to happen, but we cannot pinpoint if it's the end of
1998 or 1999. We would characterize Excite as the Tasmanian Devil of the
Web. This would make Yahoo! the Eveready Bunny. We expect neither to quit
and both to succeed. We do not expect a media deal any time soon. We wonder
whether it would slow Excite down, given the need to convince a potentially
more conservative partner to move as quickly. We believe Excite can succeed
on its own. Our price target is $92, based upon our F2001 EPS estimate of
$1.85. Given the wide range of investments in marketing and service, we
expect there can be considerable upside to our estimates and price target.
We raised our rating on E*Trade this week to Strong Buy from Buy. We
believe the company and the stock is at an inflection point, with an
expectation of acceleration in marketing and account growth over the next
few quarters. Our confidence in the E*Trade brand was validated by
Softbank's recent purchase of 27.2% of the company for $400 million. This
will increase E*Trade's cash balance to approximately $600 million, which
could enable the company to invest heavily in marketing and technology going
forward. Looking to Q2, which E*Trade is expected to report on July 21, we
expect trading volumes were volatile, but close to our estimates. While we
believe there may be some downside to our trading estimates, there is
probably upside from international licensing, from which we have not yet
included any contribution in our model. While we believe R&D costs may be
higher, we expect the bottom line to fall near our estimate. Looking to the
September quarter, we would not be surprised if E*Trade chose to focus
primarily on franchise brand marketing and less on earnings. For the last
few quarters, E*Trade dramatically scaled back its marketing campaign to
avoid the battle waged by Ameritrade, which has been marketing price as its
primary benefit. Now that Ameritrade appears to have given up on this
marketing strategy, the path seems clearer for E*Trade to jump-start its
advertising campaign, which will focus on its proprietary content, which we
believe will prove a more compelling offering than just price. We believe
the stock may react positively at the beginning of the marketing campaign
over the next few months giving E*Trade the benefit of the doubt. The risk
in the stock appears that some investors may wait for proof. Our price
target of $45 is based on a 30 multiple of our estimated 2001 EPS of $1.50.
Preview Travel is scheduled to report Q2:98 financial results on Wednesday,
July 29. News this week highlights the company's progress toward turning
its existing audience of vacation daydreamers into profitable trip buyers.
Preview Travel announced strategic partnerships with American Airlines
Vacations (AAV), one of the largest airline owned tour operator in the U.S.,
and Royal Caribbean International (RCCL), a global cruse company operating
two cruise brands, Royal Caribbean International and Celebrity Cruises.
These partnerships make Preview Travel the first online travel service to
offer real-time bookings of AAV and RCCL packages. We view these
partnerships as verification of the company's commitment to shift its
business toward higher margin non-air business. Furthermore, we believe
this announcement is a validation from American Airlines that Preview can be
a strategic partner rather then a competitor. We continue to view Preview
as one of the most attractive stock in the e-tailing group. Relative to
most, we believe it boasts opportunities for improving margins with less
competitive challenges impacting price, in our view. We maintain our price
target of $43, based on 50 times our 2001 EPS estimate of $0.85.
In our view, SportsLine is one of the most attractive Internet stocks,
positioned to lead one of the largest Web content categories and greatly
exceed our estimates. Earlier today, SportsLine announced Q2 traffic grew
23% to 5.3 million average daily page views, primarily due to strong traffic
from its World Cup coverage. In June, SportsLine's average daily page views
increased to 6.3 million, surpassing the previous high of 5.6 million in
March. According to Media Metrix, SportsLine's June @work reach, grew to
5.5% from 3.9% in May, while ESPN's reach grew only slightly to 5.5% from
5.3%. SportsLine's @home reach increased slightly to 3.1% in June from 3.0%
in May, while ESPN's reach stayed flat at 3.8%. We are quite impressed with
these numbers, particularly since SportsLine had very little on-air
promotion in June, while ESPN aggressively promoted during the World Cup.
We believe this news validates our belief that SportsLine is on its way to
being the leading recognized sports brand on the Internet, and we expect
brand momentum to accelerate to an even greater extent during football
season, when its CBS promotion kicks in. We believe it will become apparent
mid-fall that SportsLine wins the competitive battle. This announcement
gives us even further confidence that SportsLine can beat our Q2 estimates
when it reports on July 22. Our price target of $60 is based upon a 50
multiple of our C2001 EPS estimate of $1.20.
CNET also reports July 22. CNET is probably our strongest near-term
recommendation, given multiple catalysts. We believe CNET's competitive and
profitability position now ranks near the top of the Internet stock list.
We believe the company will have even more leverage when it begins charging
listing fees on COMPUTERS.COM and SHOPPERS.COM, which we believe could equal
current advertising revenues over the next year, suggesting considerable
upside to our estimates. We believe NBC will provide considerable
promotional push behind Snap!. Television commercials are expected to start
in mid-July, with a major integrated campaign slated for September. As
investors have more visibility on CNET's ability to generate commerce
revenues and to demonstrate potential earnings leverage, we believe it could
allow us to raise our estimates and price target beyond our current target
of $62.
If the table below is difficult to read in your mail browser please refer to
the attached word document or go to the website at
internetstocks.com <http://www.internetstocks.com> (it will be
updated later this afternoon).
1-Week
% Change
7/9/98 Price
to
7/16/98 52-Wk Price
Rating 7/16/98 7/9/98
Price High Target
Amazon AMZN BUY $113 3/8 $105 1/2
7% $143 3/4 $45
America Online AOL SBUY $122 5/8 $113 7/8
8% $123 1/2 $85
CNET CNWK BUY $ 50 5/8 $ 56 1/2
-10% $71 1/4 $65
E*Trade EGRP BUY $ 33 2/3 $ 25 4/7
32% $47 7/8 $45(1)
Excite XCIT BUY $ 91 5/8 $ 82 1/4
11% $111 $95
Getty GETY SBUY $ 23 1/2 $ 24 3/8
-4% $28 1/4 $40
Lycos LCOS LTA $ 70 4/7 $ 71
-1% $107 1/4 $75
NewsEdge NEWZ BUY $ 10 $ 9 1/8
10% $19 3/4 $30
N2K NTKI LTA $ 21 5/8 $ 20 3/8
6% $34 5/8 $25
Onsale ONSL BUY $ 24 3/4 $ 23 3/8
6% $36 4/5 $45
Preview Travel PTVL BUY $ 32 $ 34 1/2
-7% $44 $45
Infoseek SEEK LTA $ 33 1/5 $ 32 4/9
2% $45 $30
SportsLine USA SPLN SBUY $ 31 $ 33 1/4
-7% $39 5/8 $60
Yahoo! YHOO BUY $186 2/3 $184
1% $207 1/2 $128
Internet Stock Index
ISDEX $ 168.1 $ 162.45
3% N/A N/A
NASDAQ Composite Index
COMP $2000.56 $1939.82 3%
$2645 N/A
(1) Based on a 30 multiple
Source: FactSet
> ISDEX, The Internet Stock Index, is a trademark owned by
>Mecklermedia > (NASDAQ:MECK), used by permission.
BancAmerica Robertson Stephens maintains a market in the shares of
Amazon.com, CNET, E*Trade, Excite, Getty, Infoseek, Lycos, N2K, NewsEdge,
OnSale, Preview Travel, SportsLine USA, and Yahoo! and has been a managing
or comanaging underwriter for or has privately placed securities of C/NET,
E*Trade, Excite, Getty, Preview Travel, SportsLine USA.
FOR ADDITIONAL INFORMATION CALL YOUR BANCAMERICA 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 the
Firm, the information upon which such opinions and estimates are based is
not necessarily updated on a regular basis; when they are, 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. The Company's 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."
BancAmerica Robertson Stephens from time to time performs corporate finance
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. Facts
and other information discussed have been obtained from sources considered
reliable but are not guaranteed. BancAmerica Robertson Stephens, its
managing directors, its affiliates, and/or its employees may have an
interest in the securities of the issue(s) described and may make purchases
or sales while this report is in circulation. BA Robertson Stephens
International Limited is regulated by the Securities and Futures Authority
in the United Kingdom. This publication is not meant for private customers.
The securities discussed herein are not FDIC insured, are not deposits or
other obligations or guarantees of Bank of America NTSA, and are subject to
investment risk, including possible loss of any principal amount invested.
Copyright * 1998 BancAmerica Robertson Stephens
<<TheWeb29.doc>>
"MailHub2 <rsco.com>" made the following
annotations on 07/17/98 15:48:09
------------------------------------------------------------------------------
DISCLAIMER
Notice Regarding Entry of Orders and Instructions:
Please do not transmit orders and/or instructions regarding your Robertson Stephens account(s) by e-mail. Orders and/or instructions transmitted by e-mail will not be accepted by Robertson Stephens, and Robertson Stephens will not be responsible for carrying out such orders and/or instructions.
Notice Regarding Privacy and Confidentiality:
Robertson Stephens reserves the right to monitor and review the content of all e-mail communications sent and/or received by its employees.
==============================================================================
"MailHub2 <rsco.com>" made the following
annotations on 07/17/98 15:48:10
------------------------------------------------------------------------------
DISCLAIMER
Notice Regarding Entry of Orders and Instructions:
Please do not transmit orders and/or instructions regarding your Robertson Stephens account(s) by e-mail. Orders and/or instructions transmitted by e-mail will not be accepted by Robertson Stephens, and Robertson Stephens will not be responsible for carrying out such orders and/or instructions.
Notice Regarding Privacy and Confidentiality:
Robertson Stephens reserves the right to monitor and review the content of all e-mail communications sent and/or received by its employees.
============================================================================== |
