Reading Into barnesandnoble.com's IPO
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The first time barnesandnoble.com made its attempt at going public it filed in September 1998 as Internet stocks were coming off a hot July. The proceed talk then was $100 million.
This time around the book etailer may try and peek out into the market at a time when Internet stock offers have lost some of their luster again, yet may seek $300 million.
It's not barnesandnoble's fault, blame it on the glut of Internet issues that filed, well over 100 in the past quarter alone. I've seen the pattern before: a few Internet IPOs rocket out the gate and then every .com rushes to file.
That is often followed by a demand shortfall as investors become more astute at picking real companies from the wannabes--and there are plenty of wannabes on file now to go public.
|Target price||$ 12.00|
|Est. market value||$1,666.67|
|1998 sales||$ 61.83|
|Est. 1999 sales||$ 100.00|
|99 revenue multiple||17|
all figures in millions except share price and multiple
I allocate a fairly aggressive growth rate on barnesandnoble.com's sales although I estimate barnesandnoble.com posting only 9% of the sales of Amazon this year. That highlights the fact that Amazon.com to me is more than a rival to barnesandnoble.com. Amazon's greater product lines for sale give it girth at a time when girth may be all any of the two have or could want.
Of the possible $300 million gross proceeds barnesandnoble.com has entered agreements with AOL to sell books on AOL. That deal cost barnesandnoble.com $40 million in the years 1998-2001 with the payment schedule $8m in 1998, $10m in 1999, $11m in both years 2000 and 2001.
barnesandnoble.com also must pay MSN $3m as part of an agreement with Microsoft (plus a percentage of revenue). There's also a $4.5m agreement with per year through 2000 with Lycos.
These deals and others, as well as the higher cost of marketing, are behind the IPO target to raise $300m vs. $100m. Bertelsmann ons about 50% of barnesandnoble.com and has kicked in some capital to help the effort in a deal announced last year.
Pros: Bertelsmann and Barnes & Noble (the parent company) both have substantial resources and capital to market and grow the barnesandnoble.com service and brand.
Cons: Another spinoff stock from an established giant is not a pure play. Losses are a concern as barnesandnoble.com spends heavily to try and catch even the tailwind of Amazon.com. barnesandnoble.com had $83 million loss in 1998.
Overall: if barnesandnoble.com can sustain a valuation in line with its sales to sales percentage of Amazon it could find a $2 billion market cap rather quickly after IPO, giving it 26% to run in. It may do better if the more conservative investors are drawn to barnesandnoble.com's lineage and deep pocket partners/owners.
Until it goes though barnesandnoble.com's IPO is still a unfinished manuscript looking for a market receptive to its plot.
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