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Summer IPO: PointCast Aims For $340M Delivery On Wall Street

The novelty factor worn thin, the dug in the trenches work just begun, being so popular that corporations banned it from being downloaded and installed, some six years after inception and two years since it reached mega-hype level, PointCast, the personalized news provider, filed to go public with 3.75 million shares at a target $11 each.

But is this the Godzilla of Internet stock offers this year? We doubt it. Like Hollywood, Wall Street is fickle.

A little more than a year after it reportedly spurned a $450 million offer from News Corp., Internet-based personalized news network provider PointCast wants to debut on Wall Street at $340 million fully-diluted market capitalization, our estimated 14x revenue, while rivals trade anywhere between 2x to 15x depending on who you count as competition and which way Wall Street parts its collective hair in the morning. The numbers:

Casting King Or Castaway?

PointCast  
Pro forma IPO valuation estimates  
Offering 3.75
Greenshoe 0.56
Total offer with greenshoe 4.31
Target IPO price per share $ 11.00
IPO gross proceeds w/ greenshoe $ 47.44
   
Shares out pro forma 21.34
Plus options 9.80
Fully-diluted shares (FDS) 31.14
IPO market cap $ 342.52
Plus long-term debt $ 2.68
Less working capital $ 46.76
Less option inflow $ 18.13
= IPO enterprise value $ 280.31
   
Revenue  
1997 $ 17.99
Three months ending 3/31/98 $ 5.11
Estimated 1998 revenue $ 24.00
   
Loss  
1997 $ (29.11)
Three months ending 3/31/98 $ (6.40)
Revenue multiples  
IPO market cap/1997 revenue 19
Enterprise value/1997 revenue 16
IPO market cap/est. 1998 revenue 14
Enterprise value/est. 1998 revenue 12
   
all figures in millions except  
multiples and share prices  
© 1998 Mecklermedia. www.internet.com  

While we believe PointCast pioneered the personal broadcast model and we were certainly in awe of it in 1994 when one of the founders showed us a pre-alpha demo of the concept, four years later push and personalization have gone through a cycle or two, not to mention the rise of the Web as medium. Ho hum.

PointCast's goal in the early days was to replace those surreal flying toaster screen savers with relevant news and information streaming to your PC. Sometime around 1996 and 1997 it succeeded, just before the backlash within corporations that sought control over employees downloading PointCast clients and burning bandwidth, just before the slew of more than 20 wannabes cropped up and created "push" clients and servers and diluted the whole notion of broadcasting data over the Internet.

Like two clowns in a circus, Microsoft and Netscape also dabbled in it and soon found out perhaps it was a market whose time hadn't come, or maybe their solutions were just ineffective, their focus too blurry.

About the only ones who seem to have figured out Webcasting are PointCast, BackWeb, TIBCO and Marimba, all to varying degrees and with different approaches. Of these we think the strongest business model may be selling software licenses, but PointCast's free ad-supported product offers some compelling points. Free always seems to attract users.

Some 1.2 million people actively use PointCast according to the firm. More than 40 corporations use it in their intranets to broadcast info to employees, tapping into PointCast's 700 content sources. Companies like MCI, BankAmerica and Proctor & Gamble. Dozens of advertisers pay anywhere between $38k and $54k to run national reach spots on PointCast "intermercials," 30-second ads that cycle through the service.

About $18 million ad revenue flowed in last year and $5.1 million first quarter 1998 (a soft ad quarter industry-wide we might ad). We forecast $24 million revenue for PointCast in 1998.

The question: is PointCast a NewsEdge (NASDAQ:NEWZ) peer, a rival that trades at a measly 2.8x revenue on its best day or is it more of an Internet "brand" that can be leveraged beyond the push and pull of investor mood? PointCast's revenue pales compared to NewsEdge which could be on track to post $80 million revenue this year selling news and info to corporations and consumers, about 1 million users, roughly the size of PointCast's installed base.

Every quarter PointCast says about 1 million more people download its client and try the service. Many drop it, according to the papers PointCast filed with the SEC. Unlike NewsEdge, however, PointCast enjoys brand recognition and is clearly a different service and model, drop or not.

Despite the backlash from the media overhyping "push" in late 1996 and early 1997, we think that corporations may increasingly turn to internal network information system solutions to manage their bandwidth and brainwidth. Employees "surfing" the Internet may be a dated game and one about to end as the high cost of bandwidth adds up and managers seek to focus employees on work rather than buying books or CDs for friends and family on work time.

That could bode well for PointCast and its peers mentioned above. No more than a corporation allowing employees to make personal telephone calls at will or subscribe to dozens of personal magazines at work, the days of uncontrolled Web use from work are perhaps numbered.

PointCast's has more than 250 employees existing on an ad revenue model. Yes, it seems to work for Web sites such as Yahoo! or Lycos but they aren't updating a proprietary software client like PointCast that users download. Product development took more than half of all revenue in 1997. E-commerce is nowhere in sight along the lines of deals the Web portals have done.

New CEO David Dorman, recruited from his post as CEO and chairman of Pacific Bell, came on board in November 1997, replacing founder Chris Hassett. Dorman was paid a $1.4 million signing bonus to take over the helm at PointCast and also got several loans from the startup. Pro forma he owns 8.7% while insiders control about 60%.

After following the scent of this pioneer, what are the conclusions?

In early 1996 PointCast probably should have gone public when Yahoo! did. In early 1997, if News Corp actually did offer $450 million, maybe the money hungry move would have been to have taken it and ran. Although as a business we don't think News Corp, which botched Delphi Internet, could do PointCast justice and may have had trouble keeping other large media content providers on the service.

After all is said and done, if PointCast represents a model for what we believe could be effectively the way most intranets are run if not in 1999 then 2000 and beyond--through Webcast and targeted information delivery--if it can leverage its brand into a larger marketshare and find some e-commerce deals to boost its bottom line, perhaps its IPO event will be seen as the smartest move its made yet. It has a chance to hit its target yet.