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Fat Profit Potential

As investors, we're always hoping for large profitsyou could even say fat profits. So why not look at a company that has such success in its name -- Fatbrain.com (FATB).

The name suggests success and after a further look, investors will agree that this company is a long-term winner. Fatbrain.com maintains two brick and mortar retail stores in Silicon Valley, an e-commerce Web-site, and roughly 340 co-branded/customized intranet stores. Reporter@Large supports the company because of its current market value, business focus, business-to-business (B2B) premium, eMatter initiative, scalability and strong investor backing.

Current Market Value

The estimate for total revenue in fiscal 2001 ranges at around $90 million. Fatbrain.com currently trades at 18-7/16 with a $210 million market capitalization. So FATB, a market leader and strong B2B player, trades at roughly 2x next year's total revenue. Almost inconceivable but of-course attractive in today's Internet stock marketplace. Other market leaders such as Yahoo! (YHOO) and eBay (EBAY) trade at earnings/revenue multiples in the range of 40 and beyond.

Business Focus

Fatbrain.com sells professional publication resources in the form of books, training materials, product manuals and research reports. Unlike sites such as Amazon.com (AMZN) which try to cross-sell additional merchandise. Fatbrain delivers information publications and mission critical services to business professionals. Period.

An attractive market: US Bancorp Piper Jaffray estimates that there are approximately 12 million technical and scientific professionals worldwide, up 50 percent from 1997. In addition, the investment bank estimates that the overall information resources market for all professionals will reach $34 billion by 2006.

Take a trip to the company's home page and you'll see their Linux Library, an e-commerce library offering all Linux related book titles. This is a good example of Fatbrain's concentration on technology experts (the company also currently targets business, finance, math and science experts). So tech-heads can come to Fatbrain and buy specific Linux books and manuals.

Now, consider the company's new eMatter initiative which allows anyone (amateur or professionals) to write and effectively publish his works online at Fatbrain.com. I suddenly begin envisioning a network of Linux users/programmers -- call it a developer network. That's what Larry Augustin, CEO of VA Linux Systems (LNUX), envisioned when he bought Andover.net for about $900 million. Fatbrain's position in the corporate services market, e-commerce offerings and potential user base at eMatter could very well become a developer network, servicing the corporate Linux space.

B2B Premium

For as well known as Fatbrain is as an etailer of professional publications, there's an even more interesting story. Eighty-five percent of Fatbrain.com's revenue is courtesy of its corporate services, which are in effect B2B applications. Dubbed as Information Exchange, they are a suite of B2B applications that help businesses produce, manage, market and distribute corporate resources/information.

Here's the run down on the Information Exchange Suite

1) Custom Online bookstores: FATB provides businesses with co-branded/customized intranet-based bookstores. This enables employees and targe