Hey you old bull here's cow for you start banging away...
VerticalNet Shows Business
Acumen
(12/23/98, 2:38 p.m. ET)
By Tom Taulli, TechWeb
One up-and-coming company has the right name for
an IPO: VerticalNet, a leader in what are known as
"vertical trade communities."
VerticalNet builds websites for specific industries.
The offering's underwriters include Lehman
Brothers, Hambrecht & Quist, and Volpe
BrownWhelan & Co. The proposed symbol is VERT.
All VerticalNet sites have an online buyer's guide
and search engine, which allows for searching for
specific products based on name and supplier.
VerticalNet creates a marketplace, or storefront,
for advertisers, and includes news and product
analysis created by an in-house editorial team.
In addition, VerticalNet sites have communities
where visitors can engage in real-time discussions
with other industry professionals, freeware, demo
software, access to industry guides and virtual
trade shows, a career center with resume's and
job listings, and finally, requests for proposals.
Traditionally, access to all this information
required subscriptions to trade publications and
trips to trade shows. But those have drawbacks.
For example, trade magazines can be out of date
by the time they're published, and traveling to
trade shows can be expensive. They're also
infrequent.
But with VerticalNet, you get the resources you
need at the click of the mouse.
In all, there are 29 vertical-trade communities.
Examples include: chemicalonline.com,
computeroem.com, testandmeasurement.com,
medicaldesignonline.com, publicworks.com,
poweronline.com, wateronline.com,
packagingnetwork.com, and
pharmaceuticalonline.com.
They may not be the most exciting places to visit
on the Web, but they could become very
important to commerce.
VerticalNet's sites have yet to see significant
traffic. For example, wateronline.com had 83,006
unique visitors in October and 237 advertisers.
Then again, the traffic they do get is highly
targeted, something advertisers like.
So far, VerticalNet's business model is based on
advertising revenue. Advertisers include industry
giants such as FMC, Hewlett-Packard, Motorola,
U.S. Filter, and Schlumberger. The company says
it plans to broaden its revenue sources to include
education services, e-commerce, online industrial
auctions, and sponsored newsletters and
discussion forums.
The virtual business-to-business market is huge
and growing fast. According to Cambridge,
Mass.-based Forrester Research,
business-to-business advertising is expected to
grow from $290 million in 1998 to $2.6 billion in
2002. Forrester also projects
business-to-business e-commerce will grow from
$17 billion in 1998 to $327 billion in 2002. As for
online business auctions, revenue is expected to
grow from $8.7 billion in 1998 to $52.6 billion in
2002.
Building an extensive
network of sites is very
expensive -- especially for
a private company.
VerticalNet has pursued an
aggressive strategy of
strategic alliances with
Excite, Junglee, and
Onsale.com. VerticalNet
has also made its share of
acquisitions. In September,
the company purchased RF
GlobalNet, which operates
rfglobalnet.com. The site
focuses on the radio
frequency and wireless communications industry.
For the first nine months of 1998, VerticalNet
reported losses of $8.3 million. The accumulated
deficit stands at $14 million.
Let's take a closer look at the financial results for
the first six months of this year, compared with
the first six months of 1997:
Revenue increased from $551,000 in 1997 to $1.9
million in 1998. This was primarily the result of the
increase of the number of vertical communities
from 16 to 29.
Editorial and operation expenses, which include
website equipment, depreciation,
salaries/benefits, and Internet connection
charges, increased from $674,000 in 1997 to $2.1
million in 1998.
Product-development expenses, for
salaries/benefits for technical personnel and
consulting fees, increased from $451,000 in 1997
to $798,000 in 1998.
Sales and marketing expenses, including
salaries/benefits for sales and marketing
personnel, as well as advertising, public relations,
and trade-show costs, rose from $1.3 million in
1997 to $4.4 million in 1998. With the IPO money,
expect the company to spend much more money
on sales and marketing.
General and administrative expenses, which cover
executive compensation, finance, human
resources, and professional fees, jumped from
$891,000 in 1997 to $2.9 million in 1998.
VerticalNet has a first-rate management team.
Mark Walsh, the president and CEO, was
perviously a senior vice president at America
Online. He founded AOL Enterprise, the
business-to-business division of AOL. Michael
Hagan, VerticalNet's senior vice of mergers and
acquisitions and product development, was
previously a vice president at Merrill Lynch Asset
Management. And Michael McNulty, a senior vice
president, has extensive experience in the
trade-publishing industry.
There is no other company that offers such a
wide variety of virtual online trade-resource sites.
Yet there is definitely a demand for such
information and there is, of course, demand for
Internet companies looking to go public.
VerticalNet should do well in 1999. |
