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Deja.com Near IPO; Will It Be Bought Soon After?

When DejaNews, now called Deja.com, first ventured forth on a belly full of venture capital to leverage discussion lists it was 1995 and the idea seemed promising at the time. The Deja Vus they are a changin.'

Four score to today Deja has turned its traffic into a people's choice of the Web, allowing users to vote on various topics. Sure, the discussion list underbelly of the beast is still there. But I suspect that Deja began realizing that its revenue ramp in pure discussion couldn't reach the newfangled potato chip taste of the Web community space.

What does Deja now do? provides users 33,000 Usenet discussion groups and over 10,000 proprietary discussion groups. But Wall Street doesn't want 1974-circa spam-infested discussion lists. It wants new millennium communities. Vote, click, buy. The popularity engine approach.

Hence, Deja divides its approach into three categories: discussions, ratings and communities.

If you click on a link for a stock discussion, for example, it brings back a threaded discussion and asks you on the same page to rate Hewlett Packard, for example. The rating weakness to me is this, Deja is asking anyone to rate companies on "management," "products," "market position," and "growth prospects."

Casually replying on a scale of 1 to 5 (5 is best) implies that the rating is basically worthless to me. How is someone going to quickly evaluate HP's management? market position or growth? Those results mean zero other than surface noise.

Before I go on let's see the numbers.

Deja had a pretty good first quarter with $1.7 million sales; net loss was $3 million. For all of last year sales were $5.1 million and a $8.8 million loss. Media Metrix reported Deja.com's April eyeballs reached 1.7 unique users.

Deja doesn't yet slate a price per share or number of shares offered in its IPO but wants to raise $57.5 million. Having analyzed hundreds of Internet IPOs since 1994 I'm going to estimate Deja.com seeks a $230 million IPO market valuation, or what could be 34x annualized 1Q99 sales.

If I factor in some growth for Q2, Q3 and Q4 then I can see Deja posting $9 million sales for 1999, inputting a 26x sales multiple.

Given the state of the Internet IPO market -- which I'd describe as paranoid schizophrenia tendencies meets Viagra-induced rush -- I can see Deja rising...er, climbing to perhaps a 50x sales multiple or $450 million market capitalization on its first day.

Now investors kicking the tires here on Deja may want to consider what I think could be the exit strategy: sale to an Amazon.com (NASDAQ:AMZN), Inktomi (NASDAQ:INKT), About.com (NASDAQ:BOUT), Lycos (NASDAQ:LCOS) or similar large bird of prey.

Why? Discussions, ratings and communities are part of the suite of offerings that would make a Amazon.com a little deeper for example. All topics tied to buying and selling, all ratings sorting the best products, all communities hubbed around themes and topics.

Deja may IPO and do good but I think it gets acquired soon after.

Veja Do.


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