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To: ztect who wrote (9819)	2/13/1999 1:18:00 AM
From: Warren A. Wilbur, Jr.	Respond to of 40688

Ya, Z , seen this D&B today, here is another one with another perspective on Net Stocks frenzy: The Price Tag on You Is What Drives Net Stocks Stewart Alsop Reporter Associate: Jane Hodges How much are you worth? This is a pretty cosmic question. In our most insecure moments, many of us may ponder this question. Lawyers on a liability case may argue interminably over the precise calculation of an individual's worth. But on the World Wide Web, the calculation is the meaning of life itself. That's because Wall Street has lost its mind and now values companies in a way that cannot be justified by any calculation previously known to man or accountant. The basis for that valuation? Something called the lifetime value of the customer: you. Recently Yahoo purchased GeoCities, using shares of stock that were worth more than $5 billion; before the deal GeoCities already had a healthy market cap of around $3 billion. All this for a company that had a little more than $18 million in revenue in its last fiscal year and that lost more than $19 million. One of my partners suggested, on hearing this news, that perhaps we should forget about Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a measure of a company's success and substitute EBE (Earnings Before Expenses). He's not alone in trying to understand how to make sense of a company that loses progressively more money each quarter, yet is rewarded with higher and higher share prices. People who have spent their entire lives in the financial services business are feeling confused. How the heck can anyone, even someone who has never bought or sold stock before, value companies this highly? You can go on for days about how inflated Internet values are. The top three Net companies are America Online, Yahoo, and Amazon.com. (I'm an AOL shareholder.) As I write, AOL's market cap is about $80 billion; it has $3.3 billion in revenue for the past 12 months, and $252 million in earnings. Its price/earnings ratio is nearly 400. Yahoo is worth about $35 billion, with $200 million in revenue and just $26 million in profits. Its P/E is around 1,500. Amazon.com is worth about $20 billion, with $610 million in revenue and $125 million in losses. Its P/E is infinite, because it doesn't have earnings. For a moment there, Excite seemed a failure, since it was worth just $5 billion--less than a sixth of Yahoo's market cap, despite the fact that it's the No. 2 portal, with $154 million in annual revenues. Fortunately, @Home saved it by offering to buy it for a significant premium. Despite feeling unbridled wonderment at these valuations, the logical person still wants to establish a rational way to differentiate between good companies and bad. That's where the value of your life comes in. I actually understand this concept, because I spent nearly 20 years in the magazine business, where it is a crucial metric of success. Magazine publishers need to figure out how much they can afford to spend to get new people to buy subscriptions. The price they charge never fully covers their costs. But new subscriptions lead to two other sources of revenue, renewal subscriptions and advertising revenue--and that's where the profits are. In most magazine businesses, subscribers tend to stick to a magazine for somewhere between three and five years. (After so long in the business, I find myself canceling subscriptions when my lifetime value expires, just on principle.) So the magazine multiplies the time it can expect you to stick with the publication--say four years--times the amount of money it can expect from you each year during that time--say, $20 for a renewal plus another $80 for advertising--and arrives at your lifetime value, $400. As long as it sells a new subscription for less than the net present value of that $400, it makes money on a new subscriber. The lifetime value of a customer--LTV for short--has now become the underlying yardstick for valuing Net stocks. I first considered this logic when I wrote a column about America Online, in which I promised to buy 100 shares of the stock and hold them until 2000. LTV seems to apply to AOL's business: The company has 15 million customers, most of whom pay $22 a month. As the company adds subscribers, it can charge higher rates to advertisers and licensees. I suspect that new AOL customers don't last more than two years on average. If I'm right, the subscription revenue alone would be $528, and the advertising and licensing revenue could easily be another $300 or so. I'm making this up, rather than doing the real work of dissecting AOL's income statement, but the point is that you can justify a pretty hefty investment in acquiring new customers if you think you can generate $700 or $800 from each in two years. That's what LTV means to someone inside AOL trying to decide whether it's worthwhile to invest in a marketing campaign. But Wall Street, using the same measure, now values an AOL customer at about $5,300 (divide the market value of the company by the number of subscribers). That dollar figure has been rising steadily as the increase in AOL's market value has outstripped its growth in customers. In comparison with other Net companies, this doesn't look completely insane, especially if you believe that AOL can persuade customers to stick with the service longer. It gets flakier when you look at other companies. Yahoo is said to have more than 35 million registered users. Given its market value of $35 billion, Wall Street is valuing its customers at $1,000 each. (Yahoo must be thinking along the same lines, because it paid what it thought would be about $3.5 billion for GeoCities, which has 3.5 million registered users, before Wall Street pushed Yahoo's shares even higher.) But Yahoo customers pay no subscription fee. This LTV calculation is based almost entirely on advertising revenue, with some extra thrown in for expected transaction fees on various forms of e-commerce. But what exactly is Yahoo's relationship to its nonpaying customers? I'm not sure, and I'm one of them. I use my.yahoo.com as the default home page in my Web browser to check stock prices and news. And I use Yahoo to search the Web. That's about it. I don't pay Yahoo any money, and I don't buy anything from it. I only occasionally look at ads on its site. I don't know how much I'm worth, but it sure doesn't feel like $1,000! Amazon.com is trickier still. The company claims more than six million registered customers, and 64% of the company's sales are from repeat buyers. You have to make a lot of assumptions, but assume that the average customer spends $45 per order (I usually spend about $24) and buys from Amazon four times a year (for me, that's more like once or twice a month). If that's the case, the average customer produces $180 per year (I actually spent $428.62 in 19 transactions). If you can hold on to that customer for four years, he's worth $720. But a retailer needs to buy the stuff it sells, so you really need to reduce that revenue number to the gross margin on the products sold, or about 22% for Amazon.com. That would imply a lifetime value of $160 or so. But Wall Street values Amazon's six million customers at more than $3,000 each! I may be missing something, but I don't think our lives are worth that much. I know it's a new paradigm and all, but I guess I'm just too much of an old curmudgeon to think we are that valuable.

To: ztect who wrote (9819)	2/13/1999 1:29:00 AM
From: BishopsChild	Read Replies (1) \| Respond to of 40688

are you a the salesman for Fortune magazine on the threads.... what's on page 32......?

To: ztect who wrote (9819)	2/13/1999 1:22:00 PM
From: GreenKeeper	Read Replies (1) \| Respond to of 40688

<<Immense Implications Regarding PNLK partner.......AND..for ProNetLink>> Is D&B fer us or agin us? I hope co-sponsorship of the IBE with PNL portends a great working relationship, because DB's alliance with SAP and others could be formidable, otherwise. Of course, any associative tie-in would indeed be immense! This may indicate more collaboration than competition on the horizon. I like our odds. I floated my 1.25 bobber out there and caught some more PNL shares yesterday. Thanks for the article. GreenKeeper