ALL ONSALE LONGS READ THIS!!!!
A SELL-OFF IN THE NET SECTOR IS UPON US
GET OUT YOUR CHECKBOOK AND BUY MORE ONSL
C Y B E R S T O C K
Are Investors Still Ignoring Onsale?
December 31, 1998
By Matthew W. Ragas, Editor
JESUS2000.com TO GO PUBLIC...
No it's not a joke—far from it actually. Jesus2000.com, a Web site promising “virtual pilgrimages to the Promised Land,” has announced plans for an IPO in the spring of 1999. The site hawks a variety of products ranging from religious books and CD's to rosary beads, wooden crosses, and, of course, pilgrimage travel reservations. The site also offers friendly reminders such as “Be ready for the return of the Messiah!” I wonder if this news has DIDAX INC. (AMEN), creators of vertical Christian portal site crosswalk.com, shaking in their boots?
FIVE NEW INTERNET IPO'S ON TAP...
The rush by fledgling Internet companies filing for IPO's continues. While investors were relaxing this holiday season, numerous Internet companies were apparently hard at work putting the finishing touches on their S-1 forms. Net investors can now look forward to early ‘99 IPO's of not only MarketWatch.com, iVillage.com, Vignette and barnesandnoble.com, but also 5 new companies that have joined the Internet IPO pipeline in the past two weeks.
These companies include online guide site The MiningCo., auction site Priceline.com, Net analysis software firm WebTrends, and OneMain.com—a regional ISP pursuing a rural and small town ISP roll-up strategy. As planned, Ziff-Davis officially filed for an IPO of ZDNet, their network of tech news sites.
ARE INVESTORS STILL IGNORING ONSALE?
According to recent trading activity in the stock market, being first to the party isn't always best; just ask online auction site ONSALE. The company, founded by entrepreneur Jerry Kaplan, went public in April of 1997. As shares in hot Internet stocks such as Yahoo! and AOL went through the roof in 1997, gains in ONSALE's stock remained moderate. At that time, investors didn't think of online auction sites as sexy Internet plays.
Flash forward to September of this year. Competing online auction site e-Bay went public at an $18 target price that more than tripled on its first day of trading, giving the company a market cap of close to $1.9 billion. (This cap now seems quite tame as eBay's valuation currently hovers around a staggering $9.9 billion.)
This was just the kind of one-day run up sure to give Kaplan fits. Where was the Street's respect for his better-known and established ONSALE?
What Kaplan failed to realize, however, was that investors' love affair with Internet auction site IPO's had only just begun.
Another ONSALE competitor, uBid, a spin-off from Creative Computers, went public in early December at $15. The company's shares soared as high as $60 ½ before closing its first day of trading at $40. Once again, an Internet auction site hit a homerun.
Finally, ONSALE got invited to the party. Industry analysts and Internet pundits began proclaiming that shares of ONSALE appeared undervalued when compared to the meteoric price run up in eBay. Ah, justice at last. During the mad dash for Internet auction company shares, ONSALE saw their share price rocket to an intraday high of $108 on November 30th.
But ONSALE's apparent surge of interest from the Street and tech stock-happy day traders was short lived. Shares retreated to close the day at only $48. Since then, ONSALE's price has continued to hover around its November 30th closing price and, as of December 30th, the company sports a market capitalization of approximately $779 million.
So how does this valuation stack up when compared to competitors such as uBid and eBay? Currently eBay's market cap sits at around $9.9 billion. uBid on the other hand has a cap of approximately $1 billion.
So is ONSALE currently undervalued? If you look at their valuation as compared to those of their top two rivals, perhaps so. We could, of course, compare the competitors' total number of customers, profit margins, number of items listed, top line revenue growth, and—perish the thought— actual earnings. But the real argument for being bullish about the long-term prospects for ONSALE rests in the three key advantages they hold.
1) THE YAHOO FACTOR
In mid September, Yahoo! selected ONSALE's technology to create Yahoo! Auctions, Yahoo!'s person-to-person auction site. When it comes to the Web, one cannot find a larger and more significant partner than Yahoo! This agreement makes ONSALE the key component in Yahoo!'s auction strategy and pits the online media giant squarely against eBay—another person-to-person auction site. More importantly, this Yahoo!/ONSALE auction offering undersells eBay by asking no commissions, listing fees, or other charges. eBay, on the other hand, has reached profitability on the high margins generated by a variety of such service fees.
It doesn't take a rocket scientist to figure out that Yahoo!'s commission-and fee-free auction offering, powered by ONSALE, has the potential to quickly eat into eBay's business. Yahoo! has yet to spend on a splashy promotional or marketing push for Yahoo! Auctions, but I am confident they will step up their efforts in this area next year. When that happens, look out eBay! Advantage ONSALE.
2) THE SOFTBANK FACTOR
In mid May, ONSALE announced a joint venture with Japanese conglomerate SOFTBANK to establish online auction sites for the Japanese market. SOFTBANK is currently the largest software distributor in Japan and their venture arm holds stakes in over 60 Internet related companies, including GeoCities, Yahoo!, Ziff-Davis and E*TRADE.
While the Internet market in Japan is currently only 15% of the size of that in the U.S., it is expected to reach 33 million users by 2001. Many Internet companies already consider it their top priority for international expansion. So far, both SOFTBANK and ONSALE have launched SOFTBANK Internet Auction, a business-to-business site that featured over 5,000 products in its first auction, early last month.
This powerful partnership places ONSALE in an early leadership position in the Japanese online auction market and, more importantly, provides ONSALE with a very powerful relationship to build upon. Related SOFTBANK venture capital investments, such as online communities GeoCities, Zip2, TalkCity, Asia Online and ThirdAge.com among others, appear ripe for significant ONSALE auction-related deals. If ONSALE can continue to build on their SOFTBANK Japan auction venture, they will have formed powerful alignment that other auction sites simply cannot match. Once again, advantage ONSALE.
3) ZDTV: FIRST TO INTEGRATE ONLINE AUCTIONS AND TV
In mid-November, ONSALE unveiled an agreement with cable TV channel ZDTV, an affiliate of Ziff-Davis, to launch ads that showcases ONSALE's live online auctions. These commercials will air during ZDTV's Money Machine show, which focuses on how to make and save money using the Internet. ZDTV and ONSALE will use push technology to pitch fresh auction information to ZDTV's viewers every 15 minutes.
This marks a notable integration of TV and the Internet that other auction sites have yet to tackle. ZDTV viewers also comprise an ideal audience for ONSALE, since the new cable channel is geared to Internet-savvy users who are likely to be interested in ONSALE's wide range of available computer products. ONSALE's Kaplan believes that “customer interaction” is the key to his company's success, and this deal with ZDTV clearly moves ONSALE closer than any other auction site to the customer through exploiting a powerful new advertising medium.
Further, ONSALE's partnership with ZDTV and experimentation with this TV-Internet auction advertising gives them a leg up on the rush to develop applications that work smoothly with high speed cable set top boxes and related high speed Internet access devices. eBay and uBid, are you listening?
Finally, the gem in ONSALE's crown for the coming years would appear to be their growing partnership with SOFTBANK and that company's related Internet venture companies. The companies are already working together quite nicely.
For example, SOFTBANK is currently Yahoo!'s largest shareholder; not surprisingly, the ONSALE Yahoo! Auction deal occurs. SOFTBANK and ONSALE have also formed a joint venture in Japan. For over a year now ONSALE has enjoyed multi-level sponsorships with Pointcast and ZDNet, both of which are SOFTBANK related investments. Most recently, ONSALE announced their partnership with ZDTV, an affiliate of Ziff-Davis and a wholly-owned subsidiary of SOFTBANK.
So who will ONSALE partner with next? Hard to say, but judging by Kaplan's recent moves he clearly understands how to play the Internet auction game for the long term. Congrats, Jerry, for picking SOFTBANK as your apparent long-term partner. There appear to be a number of award-winning horses in the company's stable of Internet venture investments which you can ride. And, at the end of the day, lofty stock prices are nice, but they don't build successful long-term category killers.
What will current Wall St. darlings eBay and uBid counter with to stay in the race?
Your guess is as good as mine. One thing is clear, the stakes in the online auction wars have just escalated.
eBay and uBid may be winning the current “auction” on Wall St., but my bid is on ONSALE
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