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WEBDEX: Could $16B Buy Top Web Sites?

For 7% of the entire value of Microsoft (NASDAQ:MSFT) you could acquire the top 8 Web sites and basically own the Internet's leading gateways. That is, if they'd sell for market prices, which they won't. So, let's add a 50% premium in a hypothetical bidding scenario and bring the total to $25 billion, 10% of MSFT market cap. Is there a value gap one way or another?

Mecklermedia's July Sept 2 Sept 9 Sept 2 Sept 9 Percent
WEBDEX Users Market cap or PMV* Market cap or PMV* User User change
  (millions) (millions) (millions) Value Value  
Yahoo 26.6 $7,284 $7,495 $274 $282 2.9%
AOL.com* 22.0 $2,500 $2,550 $113 $116 2.0%
Excite 17.3 $1,409 $1,326 $81 $76 -5.9%
Netscape.com* 17.6 $1,700 $1,750 $96 $99 2.9%
Microsoft.com* 18.6 $2,200 $2,250 $118 $121 2.3%
MSN.com/Hotmail* 16.3 $1,250 $1,225 $77 $75 -2.0%
GeoCities 14.2 $719 $782 $50 $55 8.8%
Lycos 14.5 $966 $927 $67 $64 -4.1%
Infoseek 12.2 $594 $600 $49 $49 1.0%
Disney.com* 9.7 $1,200 $1,100 $124 $114 -8.3%
TOTAL 169.0 $19,821 $20,004 $1,050 $1,051 0.1%
AVERAGE 16.9 $1,982 $2,000 $105 $105 0.1%
*private market valuation estimate for Website only. Estimates based on revenue, users, growth, brand, mergers and acquisitions, comparables (c) 1998 Mecklermedia (NASDAQ:MECK)

The public stocks in WEBDEX shown here don't seem "undervalued" to any great degree at this juncture. Perhaps MSFT could be overvalued in a world where any one of the above firms or 25 other Websites in the millions of user range draw users as easily as Windows does.

Said another way, the most talked about, read about, stock-driven "successes" in the Internet commands only 1/10th the recognition on Wall Street as just one company: Microsoft.

But combined, the top 8 non-Microsoft sites draw a user base that rivals Windows in many ways, and increasingly acts like an OS (as predicted in Internet Stock Report way back in January this year).

The nature of a PC now is an Internet device. No consumer buys a PC for word processing or spreadsheets any more. These are core offerings, but the "sexy, cool" part of a PC sale is Internet connectivity.

For the period September 2 to September 9, the publicly-traded Web sites connected with a mixed of gains and pains. The biggest rise came in GeoCities (NASDAQ:GCTY), up 8% to an average $55 per user. That followed last week's hammering when anything remotely connected to "free" and "losses" was anathema to investors running for the exits.

The return to semi-glory for Internet stocks brought life back to Yahoo! (NASDAQ:YHOO) at $282 per user, although the 'we try harder' Excite (NASDAQ:XCIT) lost ground, down almost 6% to $76 per user. There's 271% more expected out of YHOO than XCIT at that rate. More e-commerce, ads, marketing coups, etc.

At the same time, with Netscape Netcenter and Microsoft MSN/Start, suddenly the browser comes back to the center of the value proposition once more as the default home page points to each, with real content there. All of the above, except GeoCities and AOL.com, built their businesses as Netscape (NASDAQ:NSCP) search partners. Each leveraged the Netscape platform to create their own platforms.

Meanwhile, we think MSN/Hotmail or Microsoft.com may be jumbled in the launch of the new MSN (or Start) or whatever it ends up being called. HotMail, for example, now seems more like a word mentioned on MSN and less a brand, now that it's part of the larger site. That costs valuation, in our view.

Brands can grow and develop loyalty, and "subordinating" HotMail may not be the way to maintain its identity/value.

MSN valuation, meanwhile, may be on the rise after its debut as a starting point/destination/commerce site/news hub/all-in-one bonanza default Web site for Internet Explorer. That default may be the single biggest weapon Microsoft and Netscape have for their future--and respective valuations.


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