Willie, et.al.........
Here is a copy of the report as taken from the Yahoo Board. I am not sure it is all there but I think it is. You must excuse any misspellings as the Good Folks on Yahoo had to transcribe the report from fax to text and they did so in a hurry (unfair to attack the transcription Jon).
September24, 1998
The Internet Software & Services Industry -7
* Strong Buy Enhanced Services (ESVS $1.00 Nasdaq
* Strong Buy. DOUBLECLICK $20.00 NASDAQ~ -OVERVIEW
THE INDUSTRY
The Internet and Web have enjoyed unprecedented growth in recent years, and especially in the third quarter of 1998. By the end of 1997, it was estimated that there would be 129 millionWeb users in the US, and 50 million worldwide. By the end of the year 2000, these numbers are expected to rise to 72 million and 129 million, respectively. An estimated 51% of Internet users access the net for 10 hours or more per week. As new technologies, multimedia capabilities, and the Web access increases the amount of time users spend on the Web is also expected to increase. It is estimated that the dollar amount value of advertising On the Web will increase from $551 Million in 1997 to $4.0 billion in 2001.
As the Web becomes more and more ubiquitous, as will electronic commerce. As a result, advertisers and direct marketers will increasingly seek the Web to locate markets, advertise and facilitate transactions. A growing number of users have transacted business over the Web, including buying/trading securities, airline tickets, and other goods. It is estimated that the value of transactions taking place over the Web will increase from 2.6 billion in 1996 to 220 billion in 2001. Marketing on the Web is and will continue to be highly lucrative. Let us put the d3namics of the industry into perspective before we make any judgement as to where to put noney.
ENRANCED SERVICES - ZULU GROUP.COM (www.ZULUMEDIA.COM)
The company represents a roll-UP under one corporate umbrella of several dynamic companies capitalizing on the skyrocketing reliance on the Internet as a source of commerce. Enhanced Services bas acquired all of the assets of Zulu-Tek and stockholder approval will be obtained For the purpose of this report, we are basing our investment opinion of the merits of the combined entity.
HORNIDLOWER & WEEKS INC. INVEST~ENT BANKING
110 WALL STREET; 2lsr FLOOR, NEW YORK1 NY 10005- TEL: 212-381-2£IS6, FAX: 212-361-2273
member Nasd/sipc/msrb
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Enhanced Services has three Primary sectors in which they provide comprehensive Internet solutions:
1.Zulu Interactive provides a full slate of Internet advertising services research, targeting, testing, designing, buying, managing, analyzing and auditing' Internet advertising on behalf of clients in a wide range of technology, entertainment, healthcare and other commercial industries.
Aside from its complete line of services, the Interactive Division also differs substantially from its Internet advertising competitors in its use of technology. They offer. "Beyond the Banner" technology, creating advertisements that go beyond static banners that simply appear and disappear from view. "Beyond the Banner" ads provide varying combinations of motion and sound, but even more importantly, they can detect a computer user's modern speed and system capabilities to deliver interactive ads specifically designed for that system. Users with a 28.8K modem, for example, will receive a less complex ad than users on a 56K modem or T-l line, For the premiere T-1 users' ads can be delivered in near video quality. This creates a significant competitive advantage, with cutting-edge ad products that provide higher response rates and enormous profitability potential.
2. Ecommerce provides turnkey programs targets companies on the Internet and helps them make full use of it to conduct their business. eCommerce creates, markets, builds and hosts web sites, and it fulfills customer requests, all under one roof. The company recently announced the rollout of the first-ever, complete electronic commerce 'software solution for business. While most companies focus on developing web sites, eCommerce goes far beyond that initial step to create substantial interactivity between the client and its web' site visitors, enabling than to fulfill all of their needs on a "one stop shop" basis.
The company offers complete credit card authorization and settlement, along with total integration with a 150,000 square foot fulfillment house and a state of the art backend fulfillment system. The integration of the front-end web site with the backend system allows for the real-time communication of data to the web database, bank gateway, site administrator and the self-serve online customer service center. Double quantity pricing for fulfillment makes this come together in one complete package that is easily managed by a single individual at the corporate headquarters or anywhere. All administration functions are performed through secure browser-based screens including daily reporting OLS activity and sales.
3. Technology provides the technical expertise that makes the full range of services possible. The technology behind the Internet services originates with a number of business units that were acquired because of the market-leading technology they owned. EchoMedia for example, was acquired in 1997 with its Sesame-Ad and while you wait interactive software, which is the science behind the "Beyond the-Banner" advertising d 'signs.
The technology division also encompasses the professional technical staffing to fully support the organization from within, giving greater control over products, services and the ability to serve clients, Competitors rely on outside software vendors and their technical support, but the Zulu approach of internalizing software and support gives substantial control over the future direction of the company.
THE COMPETITION
DOUBLECLICK, INC. (www.doubleclicknet)
The company has a current stock market value of $260.0 million. It is a leading provider of comprehensive Internet advertising solutions. The company has developed technologies that enable them to deliver highly targeted, measurable, and cost effective Internet advertising.
They offer three advertising solutions: (1) DoubleClick Network: is an Internet advertising network which is linked to over 60 web sites.
(2) DoubleClick DART: this technology helps advertisers optimize ads by targeting users based on pre- selected criteria.
(3) Doubleclick Direct: advertising solution designed for direct marketers.
III 1997, the company managed over 7000 advertisements for 600 advertiser' and over 100 Web publishers representing a total of350 web sites using Doubleclick Technology.
Note: The company is highly dependent on the Alta Vista Web site. Revenues were; 13.7 million or almost 44.7% of total revenues A loss or reduction of tile Alta Vista Web site would result in significant losses to the company.
Lets look at tile current balance sheets of our Analysis and Income statements for 1997-year end
YEAR ENDED
DECEMBER 31. 1997
ESVS (millions) DCLK (millions)
Gross Sales Revenue 38.2 30.5
Cost of Revenue (27.0) (20.J6
Gross Profit 11.2 10.)
Operating Expenses 27.5 18.4
Pre Tax Income (16~ (8.14
YEAR ENDED
DECEMBER 31.1997
ESVS (millions) DCLK (millions)
Cash Equivalents 0.5 2.7
Total Current 4.6 16.5
Total Assets 5.1 19.3
Total Liabilities 11.1 11.3
Share Holders Equity (3.9) 7.5
# Of Shares Outstanding Market Cap
4.0
$6.8
13.L
4 follow up to Verbal Recommendation
HORNISLOWER & WEEKS, INC- MAKES A MARKET IN THE COMMON STOCK OF ENFLANCED SERVICES, INC. AND DOUBLECLICK, INC.
Investment THESIS
We believe that die Enhanced Services should represent a core Internet holding for investors seeking exposure to the Internet and the rapidly growing interactive advancing and S Internet direct marketing sectors. We believe it is extremely undervalued and should be bought for the following reasons.
A broad spectrum of business within interactive advertising and eCOMMERCE:
With its recent purchase of die assets of ZuluTek, Inc., ESVS HAS positioned itself to provide a range of services far surpassing those offered by other Internet and advertising/marketing firms such as Doubleclick
A defensive market position: In June 1998, Zulu announced that the company generated $38.2 million dollars in gross sales revenues. Zulu provides service for more than 900 advertisers. Average ad buys on client sites continue t) increase by as much as 100%. Zulu accounted for more than 1.3 billion advertising, impressions per month in 1997.
Au increasing revenue base: ESYS tins agreed to buy eCommerce Corp. For a combination of stock and cash. Ecommerce Corp. manages sites for the NFL, Sports Illustrated, Yahoo, Gymboree and other high traffic electronic commerce sites. This acquisition will immediately add $1.0 million dollars in revenue to ESVS, and enhances the ability to deliver "TurnKey Solutions" to a larger client base for substantial future revenue opportunities.
Upside Potential: The aggressive expansion and acquisitions of other eCommerce businesses planned by the 90mpany are an incremental driver of long term growth.
I
CONCLUSION
Such is our overview of the industry' Enhanced Services is merely the cheapest stock relative to likely short-term prospects and events. DoubleClick's current 10Q's show a projected run-rate for 1998 of $60.0 million in gross revenue with a projected year end loss of $20 .0 million. Enhanced Services reported July sales of $1.46 million, which gives it a projected run-rate of $18.0 million and projects profitability by the 2"" quarter of 1999. Just as DotibkClick is expanding at a record pace, we believe that ESVS will begin to expand its services to compete, if not surpass, those of the industry leaders.
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