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Technology Stocks : Visual Data (VDAT) -- Ignore unavailable to you. Want to Upgrade?

To: Gary105 who wrote (286)	4/17/1999 10:23:00 AM
From: Fundamentls	Read Replies (1) \| Respond to of 405

While I defer to others such as you for quality TA, and certainly use my more rudimentary knowledge for market timing, I think it's particularly important with small-cap stocks to understand the market dynamics that are driving the technical indicators. In this case YHOO/BCST and speculation of the potential impact on VDAT. It was clearly overbought in the 30s/40s only if there were no major news announcements; the market was expecting some IMHO, and may still get them. I don't worry about trading timing on this stock because it's been a buy-and-hold for me and will remain that way for some time to come. It surprises me that you would be trying to apply BCST's eyeballs model to VDAT's business because they are totally different IMHO. VDAT's business model is pure content. Owned & operated web sites and portals are important only in the sense that because the biggest imperative for many 'net investors is to find the next BCST, it makes sense for any company that "can" look a bit like BCST to take what steps it can to do so. VDAT's content is marketing, advertising, corporate communications. BCST produces not a bit of this stuff. There was a chart in Business Week a while back, which I posted on at least one of the boards, showing that VC's were investing in more 'net companies in the marketing/advertising sector than in any other, and the total capital they committed was second only to the financial sector. That's about as quantitative as I've been able to get. Maybe somebody has statistics on the size of the production side of TV and radio advertising, but even that would only set a lower bound since interactive TV will open that market up to the mass of small and midsized companies who cannot afford broadcast advertising. VDAT's business model is not to serve content for themselves (although they will do that where appropriate or necessary), but to develop and serve it for advertisers. Most web sites do not have the infrastructure to serve video, and there is no reason they ever should, any more than there would have been a reason in the 1950s for every company that advertised on TV to have a broadcasting tower. BCST has built broadcasting towers. VDAT is building the advertising material that BCST and others (including VDAT/ITVU and RNWK) will broadcast on behalf of advertisers. Qualitatively, VDAT has one tremendous asset that no one else has, at least in quantity. It OWNS content. Do people realize how unusual this is? There is tons of video footage used in advertising and corporate communications for TV, corporate videos, and the like. And virtually NONE of it is reusable on the 'net or interactive TV without going back to the artists that produced it and renegotiating royalties to use the material in a media or format that was not originally licensed. Actors, musicians, videographers, and other talent retain artistic ownership and license this stuff to the advertisers for specific purposes, even when the advertiser has paid to make it. That's the way it's worked ever since the Screen Actors' Guild came into its own, and no one has thought to challenge it. Except VDAT, which realized at the outset that it was critical to own this stuff so they could reuse and repackage it as needed for the 'net and interactive TV, even if only for the advertiser that paid for it. They have a six-year lead time creating content that in most cases they own exclusive right to. They are also the only company I know besides CNN that can scramble a top-quality video crew to a location almost anywhere in the world, in a matter of hours. Even the major networks can't do this directly, they have to rely on their affiliates and have limited control over the resulting quality. How do these factors translate into revenues and profits? In general VDAT gets paid up front to produce the content, covering at least their variable costs and probably some of their fixed SG&A. Then they get paid each time somebody clicks on a link (on VDAT's web site or, more likely, on the advertiser's website or a third-party site the advertiser is present) that causes a VDAT video to be served. So the profitability comes as broadband increases to the point where more people are able to view broadband advertising content and as more advertisers commit to creating it. How quickly that will happen would be a matter of conjecture but I don't believe any of us would be here if we thought it was going to be many years. I'd love to find some surrogates to convert VDAT's business model and assets into valuation. Up until now, however, I don't see any surrogates that seem even remotely related to their business model. To me they are more comparable to FedEx than to BCST. They benefit from growth in e-commerce because they produce something that everybody needs to have and that few are prepared to do themselves. Maybe a way to try to value at least their market space is to estimate how many minutes of advertising will be watched in the interactive TV age. As many as today? Maybe, maybe not. The models have not yet emerged to determine how much control the user vs. the others will have over what the user sees, or the extent to which advertising will be push vs. pull. VDAT can succeed in any of these scenarios but the size of the market will determine the potential. I do know that the potential market space is humongous. Another way to value might be to compare to DCLK. The problem is that banner advertising is mostly ignored, whereas videos (at least today) must be consciously requested. DCLK and VDAT are extreme examples of push and pull, respectively. And whereas the click-through ratio tells you whether someone saw the banner ad and at least started to view the page it linked to, with video you can determine how much of the clip someone actually watches (to within the limitations of streaming buffers, at least). Maybe somebody can come up with a more clever and credible way to value the emerging VDATs of the multimedia advertising world, but for the moment I've contented myself to believing that the potential market (as proven by existing TV advertising revenues at a minimum) is huge, and that VDAT is one of the few companies positioned to capitlize on it in a big way anytime soon. As long as they keep executing, that will carry me to $60-$100 per share, maybe even beyond. By then there should be some more meaningful numbers to analyze. Fund