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Technology Stocks : FORE Inc. -- Ignore unavailable to you. Want to Upgrade?

To: jach who wrote (9652)	11/16/1998 7:39:00 AM
From: MoonBrother	Respond to of 12559

LCOS upgrade to BUY/BUY by Merrill Lynch -------------------------------------------- 07:06am EST 16-Nov-98 Merrill Lynch (J.Cohen (Jon) (1) 212 449-0773) LCOS LYCOS:LCOS: Raising Rating to Buy/Buy. $%70 Price Tar ML++ML++ML Merrill Lynch Global Securities Research ML++ML++ML LYCOS INC (LCOS/OTC) LCOS: Raising Rating to Buy/Buy. $%70 Price Tar Jonathan Cohen (Jon) (1) 212 449-0773 16 November 1998 BUY Long Term BUY Reason for Report: Company Update Price: $51 Estimates (Jul) 1998A 1999E 2000E EPS: d$0.12 d$0.12 $0.30 P/E: NM NM 176.9x EPS Change (YoY): NM NM Consensus EPS: d$0.13 NA (First Call: 13-Oct-1998) Q1 EPS (Oct): $0.00 d$0.07 Cash Flow/Share: NA NA NA Price/Cash Flow: NM NM NM Dividend Rate: Nil Nil Nil Dividend Yield: Nil Nil Nil Opinion & Financial Data Investment Opinion: D-2-1-9 to D-1-1-9 Mkt. Value / Shares Outstanding (mn): $1,836 / 36 Book Value/Share (Jul-1998): $5.13 Price/Book Ratio: 9.9x ROE 1999E Average: NA LT Liability % of Capital: 0.0% Est. 5 Year EPS Growth: NA Stock Data 52-Week Range: $56 5/8-$13 7/16 Symbol / Exchange: LCOS / OTC Options: Pacific Institutional Ownership-Spectrum: 36.5% Brokers Covering (First Call): 15 ML Industry Weightings & Ratings Strategy; Weighting Rel. to Mkt.: Income: Underweight (07-Mar-1995) Growth: Overweight (07-Mar-1995) Income & Growth: Overweight (07-Mar-1995) Capital Appreciation: Overweight (28-May-1993) Market Analysis; Technical Rating: Average (27-Jul-1998) The views expressed are those of the macro department and do not necessarily coincide with those of the Fundamental analyst. For full investment opinion definitions, see footnotes. Investment Highlights: o We are raising our investment rating on Lycos from Accumulate/Buy rating to a Buy/Buy rating. o At the same time, and based upon our expectation for the integration of Wired Digital into Lycos' operating structure, we have increased our 12-to-18 month price objective on the company's shares from $50.00 to $70.00. Fundamental Highlights: o Our $70.00 price objective is equal to a price-to-calendar 1999 revenue multiple of approximately 16x. o While we maintain a generally conservative view with regard to Internet equity valuations overall, we do believe that Lycos shares represent a compelling opportunity at current levels. We are raising our investment rating on Lycos from Accumulate/Buy rating to Buy/Buy rating. At the same time, and based upon our expectation for the integration of Wired Digital into Lycos' operating structure, we have increased our 12-to-18 month price objective on the company's shares from $50.00 to $70.00. Lycos operates one of the world's largest online communities with a combined (at home/work) audience reach of 38.3% during the month of September. The audience reach of the Lycos network trails behind only AOL, Yahoo and Microsoft (and excludes Wired Digital's reach of 7.4%). Combined, Lycos' existing network properties have approximately sixteen million registered users. (That figure also excludes Wired Digital.) Among the portal companies, Lycos has pioneered the network strategy of integrating a variety of different sites with diversified programming. The Lycos network strategy enables advertising and commerce partners to reach a broad audience while targeting specific consumer demographics. Moreover, Lycos is one of the very few companies within the Internet portal space that has demonstrated profitability. With its pending acquisition of Wired Digital (a transaction which we estimate should add approximately $22.0 million to the company's calendar 1999 revenues), we believe that Lycos is extraordinarily well positioned to leverage its Internet distribution network into a broader base of proprietary content. Lycos is expected to report fiscal first quarter (October) operating results this Thursday, November 19(**th). Our estimates call for the company to have generated approximately $22.9 million in revenues, and to show a per share loss (principally attributable to its recent acquisition program) of about $0.07 excluding amortization of goodwill. Given its recent operating momentum and what we believe is the continued successful integration of its various component parts, we expect that the company may report results better that our projections. With regard to our overall investment thesis on Lycos, we would continue to focus on the following points: Deferred Revenues. Lycos currently maintains $57 million in deferred revenues that will be recognized over the next 12-to-18 months. Conservative Accounting. The company does not recognize any significant barter revenues in its reported sales. Fiscal Conservatism. Lycos turned profitable during the first quarter of fiscal year 1998 (the third quarter of calendar 1997), and continues to operate with a level of financial conservatism that is unusual within the Internet space. Strong Balance Sheet. As of the latest quarter, Lycos had $154 million in cash on the balance sheet. Price/Revenue Valuation. As discussed previously, we believe that there exists an effective equivalence between price/revenue and price/earnings valuation methodologies for high-growth companies that can reasonably be expected to generate high-margins over a long period of time. We believe that Lycos falls into that category. Commerce Partnerships. The company continues to announce significant new agreements with major commerce partners. Lycos has entered into commerce agreements worth approximately $125 million. Our $70.00 price objective is equal to a price-to-calendar 1999 revenue multiple of approximately 16x (a multiple which is consistent with our discounted cash flow analyses, which is predicated on a long-term operating margin assumption of approximately 30%). Our calendar 1999 revenue estimate is approximately $177 million and excludes any recognition of international revenues. While we maintain a generally conservative view with regard to Internet equity valuations overall, we do believe that Lycos shares represent a compelling opportunity at current levels. (LCOS) MLPF&S was a manager of the most recent public offering of securities of this company within the last three years. Opinion Key (X-a-b-c): Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 - Reduce, 5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.