George,
You missed the point and by a lot.
I did not state that traffic was falling. I stated that Yahoo is losing market share.
That means the market is growing but Yahoo
is not growing as quickly as the market.
Here is the complete report you refer to as Gospel:
"
BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
keith_benjamin@rsco.com
October 9, 1998
The Web Report #41
THE BIG GET BIGGER BUT STILL GET BATTERED: While Yahoo! posted another
jump in every metric, pointing to the earnings power of the Web, it was
not enough to buck the downtrend in stocks overall. Competitors to the
Web leaders, including Yahoo! and Amazon.com, appear to scrambling to
catch up through mergers. Deals this week included Lycos buying Wired
Digital, Bertlesmann buying half of barnesandnoble.com, and N2K and
CDNow in merger discussions.
The ISDEX hit its new low of 83.28 on Wednesday (Thursday's ISDEX was
not available), down 17% from last week's close of 99.76. The ISDEX is
down 51% from its most recent high in mid-July. The NASDAQ is down 12%
from the end of last week.
WHAT DO I BUY NOW?: The stock drop after the Yahoo! report may signal a
fear that the good news is already out. Still, we believe the leading
Internet stocks will be among the first to recover. We would keep
accumulating the biggest companies, starting with AOL, which we still
expect will show big numbers on its end of month report. Other stocks
with leadership positions and earnings include CNET and Network
Solutions. If Excite manages to approach breakeven, it may be enough to
help draw more attention to the stock. There are also a few stocks
selling near cash values, notably E*Trade at approximately $12, with
approximately $10 per share in cash.
YAHOO! STILL SETTING THE PACE: Yahoo! reported Q3 sales of $53.6
million and EPS of $0.15 versus estimates of $43.2 million and $0.09,
exceeding even the high end of our expectations. Overall, Yahoo!'s
operating margin was 31.7% versus our estimate of 21.5%. September
traffic was up 25% to 144 million average daily page views from 115
million in June. Registered users were 25 million, up 28% from the
prior quarter. Yahoo! now has over 25 million unique registered users,
up 28% from 18 million at the end of June. These users have submitted
personal data though a universal registration process. We view this as
the strongest available measure of a sustainable Web network, as we
believe registered users are likely to return to a site often. We
believe Yahoo!'s strong revenue and traffic growth validate our belief
that the prize for first place is much higher than for second or third.
We raised EPS estimates going forward, but are restraining estimates
somewhat, reflecting the probability the company will spend some of its
$430 million in cash on marketing or enhanced services. We are raising
our price target from $65 to $67.50 based on 50x our new 2001 EPS
estimate of $1.35. We expect to be able to raise our estimates
dramatically over time, which will allow us to raise our price target
above current trading levels.
THE PRIZE FOR FIRST PLACE GETS BIGGER: We continue to believe there
remains considerable upside to our estimates, particularly as we look
out over the next year or two, with Yahoo!, as leader, capturing a
disproportionate share of advertising and commerce revenues. For
reference, we estimate that Yahoo! revenues in 2001 will approach $700
million, relative to our estimate of U.S. advertising revenues of more
than $6 billion in 2001. This would give Yahoo! just over 10% market
share, by our estimate. We expect commerce revenues to be significantly
additive as Yahoo! benefits from both rental and transaction payments
related to buying in stores renting space on the site. For reference,
we estimate e-tailing (rental) payments to networks (landlords) will
exceed $1.8 billion in 2001. If Yahoo! received 10% of that, its share
would exceed $180 million. International revenues can also be
additive. We are assuming Yahoo! essentially maintains audience share
and reaches some 100 million people out of our 2001 estimate of 160
million people worldwide. Generally, we expect more revenues per Yahoo!
member than our 2001 assumption of almost $5 per person visiting the
network.
THE PRIZE FOR SECOND PLACE: We project the 1998 Web advertising market
will be $2 billion. Our top seven Internet networks account for only
28% of that, by our estimate. Just as in traditional media, we would
expect most of these dollars to eventually flow to a few major networks
and one or two specialty networks in each area, such as sports or
finance. This suggests that there is still room for second and third
placed competitors out there ripe to either be consolidated or perish.
However, we believe the window of opportunity for new networks may be
slamming shut.
SPORTSLINE STRUGGLES FOR FIRST PLACE PRIZE: SportsLine preannounced
lower-than-expected Q3 advertising sponsorship revenues, somewhat offset
by higher commerce revenues. We expect the company to report $7.4
million in revenues, compared to our prior estimate of $8.8 million. We
believe this is a function of weak sales execution and what we believe
is an increased tendency of advertisers to spend much more on the leader
in a segment. In this case, we believe competitor ESPN took some
sponsorships. SportsLine also announced the renewal of its AOL deal,
which we view as significantly favorable. SportsLine will pay AOL $23
million with a combination of cash, stock, warrants, and revenue
sharing, with the majority being incentive-based and back-end loaded.
We believe the AOL deal could help SportsLine become the market share
leader. For reference, AOL's Sports Channels attract an audience of
more than five million people, compared to an estimated audience of some
three million for SportsLine. We lowered our rating to Buy from Strong
Buy to reflect our concern that it may take until Q1:99 to make the
extra sales effort necessary to close sponsorship deals and to
demonstrate AOL's ability to shift audience market share to SportsLine.
COMPETITIVE PRESSURES SECOND TIER TO MERGE: Internet time has
accelerated competitive battles faster than we have expected, as
illustrated by three deals this week. At some point all industries
undergo a consolidation phase, but it is typically accompanied by price
competition and lower gross margins. The difference in the Internet is
that while most consolidations are driven by the need to cut costs, in
this instance it is the need for mass. The bigger brands are attracting
disproportionately larger audiences, advertising and commerce revenues.
The bigger stocks are still seeing higher valuations.
LYCOS BUYS WIRED DIGITAL: Lycos announced plans to acquire Wired
Digital, Inc. for $83 million. Wired Digital properties include HotBot,
HotWired, Wired News, Webmonkey and Suck.com. Wired Digital used to own
Tripod, but sold the business to Lycos earlier this year. Wired
Digital's online properties reached 8.2% of all Web users at home or at
work, or more than 4.7 million unique users, in the month of August,
according to Media Matrix. Lycos' reach was 37.5%, or almost 21.7
million unique users for the same month. We estimate Lycos' and Wired
Digital's combined properties would have had an unduplicated reach of
more than 40% in August. We view this move by Lycos as a solid effort
to expand its reach and increase the number of return visitors. We
believe Lycos management has recognized that only with greater mass can
it compete with Yahoo and AOL.
N2K talks merger with CDNow: Both companies confirmed on Wednesday they
were in talks to combine efforts in the fight against Amazon. We view
this as more a sign of each company's desperation to deal with low
margins and sharp competition. We doubt the combination will have a
much higher probability of survival. In our view, Amazon's brand name
is just too strong and its multiproduct business model more likely to
yield profits.
Bertlesmann and Barnes & Noble establish Joint Venture: Barnes & Noble
announced it would postpone its IPO plans for its online book retailing
site and allow German publishing giant Bertelsmann to take a 50% stake
in it instead. Bertelsmann will pay $200 million for half of the
barnesandnoble.com joint venture and will gain an outlet for selling
books in the United States. Bertelsmann still plans to launch its
BooksOnline service in Europe next month. As Bertelsmann's competitive
position appears stronger in Europe, this two-branded approach seems
less attractive for barnesandnoble.com. Why not have one company and
push one international brand? It seems like another strategy destined
for competitive failure, in our view. At least the market size and
margins should allow more room for a second place player. The site has
had more than 700,000 customers and generated $22 million in revenues
for the six-month period ending August 1. The deal values
Barnesandnoble.com at $400 million, or about 9x current revenue run
rate. Amazon, in contrast, is about 4 -1/2 times bigger ($400 million
run rate based on last 6 months) and even in this depressed market
trades at 11.6x revenue.
THE BIG PICTURE: We continue to believe the market capitalization
levels for the group make sense relative to the economic opportunity,
although we expect the number of competitors will narrow considerably
over the next year or so. This week the market capitalization of the 50
companies in the ISDEX index is approximately $62 billion, with total
trailing sales of almost $7.6 billion, suggesting a revenue multiple of
8.2 times. This compares to the top 20 media companies, which have a
combined market capitalization of approximately $309.7 billion, compared
to total trailing 12-month revenues of about $172.5 billion, for a
multiple of almost 1.8 times.
Rating 10/8 10/1 1-Wk 52-Wk Chg Price
Chg High 52Wk Hi Target
10/1- to 10/8
10/8 Price
Amazon AMZN BUY 86 1/5 102 5/8 -16% 147 -41.4% 46
Am.Online AOL SBUY 85 1/2 100 -15% 140 1/2 -39.1% 124
CMG CMGI LTA 37 3/8 47 3/8 -21% 91 3/4 -59.3% 60
CNET CNWK SBUY 37 1/2 41 1/2 -10% 74 1/2 -49.7% 68
Dig.River DRIV BUY 6 1/8 7 7/8 -22% 13 1/4 -53.8% 15
Dialog DIALY LTA 9 1/5 12 1/8 -24% 16 1/4 -43.5% 20
Dbl.Click DCLK LTA 16 20 3/8 -21% 77 1/8 -79.2% 20
E*Trade EGRP SBUY 12 17 4/7 -32% 38 1/4 -68.5% 51
Excite XCIT BUY 29 35 4/7 -18% 55 1/2 -47.7% 46
Gemstar GMSFT BUY 43 1/8 44 3/8 -3% 48 1/4 -10.6% 70
Getty GETY SBUY 12 3/4 16 -20% 28 1/4 -54.9% 40
Lycos LCOS BUY 25 29 2/3 -16% 53 5/8 -53.4% 44
NetGravityNETG BUY 9 10 2/3 -16% 32 1/2 -72.3% 38
Netw.Sol. NSOL BUY 30 1/4 38 3/4 -22% 58 -47.8% 75
NewsEdge NEWZ LTA 5 8 -38% 19 3/4 -74.7% 18
N2K NTKI LTA 5 3/8 6 -10% 34 5/8 -84.5% 18
Onsale ONSL BUY 12 1/2 16 1/8 -22% 36 4/5 -66.0% 51
Pre.TravelPTVL BUY 11 1/4 16 3/8 -31% 44 -74.4% 43
Infoseek SEEK LTA 18 1/2 22 1/2 -18% 45 -58.9% 30
SportsLine
USA SPLN BUY 9 16 3/8 -45% 39 5/8 -77.4% 61
Yahoo! YHOO BUY 104 4/5 113 -7% 134 5/8 -22.1% 67
Internet Stock
Index ISDEX 83.28(2) 99.76 -16.5% N/A -25.7% (1) N/A
NASDAQ
Composite
Index COMQ 1419.12 1612.33 -12.0% N/A -18.5% (1) N/A
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".
(1) Change based on last 12-month's performance.
(2) From 10/07/98.
Source: AT Financial and BancBoston Robertson Stephens estimates.
ISDEX, The Internet Stock Index, is a trademark owned by Mecklermedia
(NASDAQ:MECK), used by permission.
BancBoston Robertson Stephens maintains a market in the shares of
Amazon.com, CMG Information Services, CNET, Dialog, Digital River,
DoubleClick, E*Trade, Excite, Gemstar, Getty, Infoseek, Lycos,
Microsoft, NetGravity, Netscape, Network Solutions, NewsEdge, N2K,
Onsale, Preview Travel, 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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Unless otherwise noted, prices are as of Thursday, October 8, 1998. |
