Morning Report
Thu Dec 10
Closing The Gap?
WEBDEX Led By Excite, MSN-HotMail,
Infoseek
By Steve Harmon
Senior Investment Analyst
Internet.com
"Where Wall Street Meets The Web"
On a value per user basis this week's WEBDEX shows Yahoo (NASDAQ:YHOO - news) trading at a 4x
premium to the average user value for the top 10 websites. Kind of puts things in context when you
consider that even with a 27% rise since December 2, Infoseek's user base trades at 16% of Yahoo,
and still a slight discount to the other peers.
SEEK popped on the anticipated debut of its venture with new pal Disney (NYSE:DIS - news) called
Go.com, which could be the litmus test for if the new DisneySeek makes sense.
For despite doing the Mickey Mouse chant to the tune of $430 million for 43% of SEEK, Disney's
majority option rights take SEEK out of the mix from another buyer, we believe. In other words, Disney
should consider its options here and ways to increase SEEK shareholder value.
Internet.com's
October
Dec 2
Dec 9
Dec 2
Dec 9
Percent
WEBDEX
Users
Market cap or
PMV*
Market cap or
PMV*
User
User
change
(millions)
(millions)
(millions)
Value
Value
Yahoo
25.21
$19,448
$19,528
$771
$775
0.4%
AOL.com*
24.38
$4,035
$4,200
$165
$172
4.1%
Microsoft.com*
20.55
$2,650
$2,750
$129
$134
3.8%
Lycos
18.31
$2,332
$2,332
$127
$127
0.0%
MSN.com/Hotmail*
17.84
$2,500
$2,750
$140
$154
10.0%
Netscape.com*
15.71
$2,350
$2,350
$150
$150
0.0%
Excite
15.52
$2,548
$2,889
$164
$186
13.4%
GeoCities
14.87
$1,034
$1,115
$70
$75
7.8%
AltaVista
11.13
$750
$700
$67
$63
-6.7%
Infoseek
10.87
$1,064
$1,354
$98
$125
27.3%
TOTAL
174.4
$38,711
$39,968
$1,882
$1,960
4.2%
AVERAGE
17.4
$3,871
$3,997
$188
$196
4.2%
AVG. without Yahoo
16.6
$2,140
$2,271
$123
$132
6.8%
Ironically, from the documents we've seen, Disney holds the right to buy SEEK control for $50 per
share, the way the document looked to us. With its equity position "effectively" giving it control,
however, it may not have to.
In that scenario you have to wonder if both Disney and Infoseek were privately held, combined forces,
and then went public, that the perception on Wall Street may be a bit bigger than the $1.3 billion market
cap.
We're waiting for Disney's famed leverage to emerge here...and waiting...just waiting for the go in
Go.com.
We're shaving some value off Compaq's (NYSE:CPQ - news) Altavista unit which it inherited when
Compaq acquired Digital. A yawner so far. We think Inktomi (NASDAQ:INKT - news) owns search with
its sleek wholesale styling and snazzy design vs. Altavista's pure RPM or horse power is king model.
Compaq has the chance to turn Altavista into something powerful or it can divest the traffic to another
large Web player. We're generous with the $700 million here and think an actual deal may fetch much
less.
About the only undervalued (compared to the group) one we see looks like GeoCities (NASDAQ:GCTY -
news) which just completed its buy of Webring.
The thing about communities that casual observers miss is that its users are much more attached to
using them than a directory or web hub in some ways.
Why? users have their own personal creations up there for the world to see. While GeoCities and other
ad-based websteaders may not have found the ultimate business model they have found a better user
model in our opinion.
We don't think the last iteration on communities' business models has been sounded and expect these
sites to evolve rapidly to leverage their user bases and relationships.
Microsoft's (NASDAQ:MSFT - news) best buy on the web it ever made was HotMail we believe. HotMail
now adds something like 1 million users per week.
I recall when founder Sabeer Bhatia presented at my investment conference at Spring Internet World in
Spring 1997. Yes, the usual "hockey stick" growth projection slide was used. But HotMail has more
than hockey sticked, it's been more moonshot.
Here's one take on how to realize the value for Microsoft, satisfy some of the anti-trust brigade, and
unleash some capital flow: why doesn't Microsoft spin off MSN/HotMail/Expedia/CarPoint in an IPO?
We think it could be a $6 billion combined entity already and find legs that may take it north of $15
billion in short order once public.
Plus, it would make it easier for Microsoft to not dilute its shares further with options to the Internet
firms in its fold, give it a tracking stock as currency for deals, and also not dilute demands on future
earnings if/when options are converted. Maybe Bill and Greg (CFO) will consider that? |
