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RealTime IT News

Bottom Line: Value Per User Equals Discounted Earnings Expectations

Do Internet companies prop up the balance sheet today (window dressing EPS) for the sake of showing Wall Street that the training wheels are off? Or do they invest in building marketshare at the expense of earnings today in order to have better earnings tomorrow? Can a firm have its earnings and eat its earnings too?

Another way of looking at earnings potential or the expectation of earnings is through Mecklermedia's WEBDEX, WebSite Value Index. We take the market cap and divide by unique users (as defined by Relevant Knowledge) to arrive at the WEBDEX. This is one way of gauging how Wall Street discounts ahead earnings potential for each of the companies shown.

Mecklermedia's

July

Aug 12

Aug 19

Aug 12

Aug 19

Percent

WEBDEX

Users

Market cap or PMV*

Market cap or PMV*

User

User

change

website value index

(millions)

(millions)

(millions)

Value

Value

Yahoo!

26.6

$8,935

$8,923

$336

$335

-0.1%

AOL.com*

22.0

$3,000

$3,100

$136

$141

3.3%

Excite

17.3

$2,281

$2,201

$132

$127

-3.5%

Netscape.com*

17.6

$1,800

$1,900

$102

$108

5.6%

Microsoft.com*

18.6

$2,400

$2,500

$129

$135

4.2%

MSN.com/Hotmail*

16.3

$1,400

$1,500

$86

$92

7.1%

GeoCities

14.2

$1,395

$1,054

$98

$74

-24.4%

Lycos

14.5

$1,221

$1,286

$84

$89

5.3%

Infoseek

12.2

$893

$875

$73

$72

-2.0%

Disney.com*

9.7

$1,250

$1,300

$129

$135

4.0%

TOTAL

169.0

$24,575

$24,639

$1,306

$1,307

0.1%

AVERAGE

16.9

$2,457

$2,464

$131

$131

0.1%

(c) 1998 Mecklermedia, Internet.com; *PMV=private market valuation; total may include duplicate users using more than one site; user tallies per www.rkinc.com

Obviously there's a lot of high hopes for Yahoo! (NASDAQ:YHOO) at $335 per user. Too much perhaps. We think anything above $150 per user for any of these is too high.

The biggest decliner of the week was home page rodeo king GeoCities (NASDAQ:GCTY) which went public against a falling market and soared before gravity grabbed some of it. WEBDEX shows GCTY per user down 24% to $74 per Websteader since August 12.

As a group the values maintained last week's position. The biggest percentage gainer was Netscape (NASDAQ:NSCP) which proves its Netcenter may be a power in the making. The second-best riser was Lycos (NASDAQ:LCOS), up 5.3% to $89 per user.

But the real story here could be completed mergers that are not factored into the stocks. We ran the unduplicated unique users via Relevant Knowledge and the top 10 actually equals 8 consolidated Web sites which bumps some of them to places you wouldn't suspect:

Mecklermedia

July

Market cap

Market cap

Value per

Internet.com's WEBDEX

Users

12-Aug

19-Aug

unique

Pro forma mergers

Or PMV*

Or PMV*

user^

& consolidation

(millions)

(millions)

(millions)

19-Aug

Yahoo!/Four11

26.6

$ 8,935

$ 9,111

$ 342.21

Microsoft.com/HotMail/MSN*

24.1

$ 3,800

$ 4,000

$ 165.98

AOL.com/Mirabilis-ICQ*

23.9

$ 3,000

$ 3,000

$ 125.52

Infoseek/Disney/ABC/Starwave

18.8

$ 2,143

$ 2,175

$ 115.71

Lycos/Tripod/Angelfire/WhoWhere

18.5

$ 1,221

$ 1,286

$ 69.51

Netscape.com*

17.6

$ 1,800

$ 1,900

$ 107.80

Excite/Webcrawler

17.3

$ 2,281

$ 2,201

$ 126.91

GeoCities

14.2

$ 1,395

$ 1,054

$ 74.02

*unduplicated users; Infoseek value = SEEK plus our PMV for Disney's Web assets

As you can see in the table with Infoseek (NASDAQ:SEEK), if we add Disney.com's Web asset private market valuation estimate of $1.3 billion, it implies more than $2 billion for the consolidated Web sites pro forma Disney's investment-merger. Still, it's probably going to take two or three home runs emerging from the deal to make believers out of Wall Street.

Another notable site is the new Lycos. With Angelfire, Tripod and WhoWhere, WEBDEX lists it at $69 per user, half the other large Web network players. Yet Lycos' consolidated unduplicated reach exceeds Excite, Netscape and GeoCities. Investors apparently haven't digested Lycos' fast moves yet.

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