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Greek To Me: EarthWeb Has How Many Users & Page Views?

Aristotle wrote thus: "The seat of the soul and the control of voluntary movement--in fact, of nervous functions in general--are to be sought in the heart. The brain is an organ of minor importance."

That was clearly evident in EarthWeb's heartfelt but brain dead IPO last week that caught not only Wall Street but scores of individual investors checking their nervous functions every few seconds. Maybe they should have checked the balance sheet and stats closer.

While our heart goes out to the firm for rocketing to the stars, our mind was fully engaged when it looked closer at EarthWeb's filing document. No mention anywhere of one of the standard metrics of any Internet company that bases its revenue on advertising: page views. How many page views per month does it generate? Doesn't say. Page views are the primary delivery vehicle for ad banners.

But the real pulse here centers on EarthWeb's claim of 1.4 million monthly users. Seems kind of high by our experience with the developer market and by looking at EarthWeb's main Web site, Developer.com. A report, for example, from independent market metric firm RelevantKnowledge showed that Developer.com had 147,000 unique users in September of this year. Far cry from 1.4 million. We'll wait and see what EarthWeb reports or says on this before deciding what to believe.

Let's take a look at EarthWeb's pro forma IPO numbers on the valuation side, with revenue, etc.:

EarthWeb EWBX
Shares out 7.90
Options 0.95
Fully-diluted shares 8.86
IPO price per share $ 14.00
IPO market cap $ 124.01
High so far $ 85.06
Low so far $ 31.00
Market cap at high $ 753.46
Market cap at low $ 274.59
EWBX share price 11/16 $ 62.25
Market cap 11/16 $ 551.40
   
Revenue  
1997 revenue $ 1.14
1997 loss $ (7.82)
Rev. 9 mos. To Sept 30 $ 1.92
Of that 25% is barter  
Revenue sans barter $ 1.44
Annualized at that rate $ 1.92
Projected 1999 revenue $ 7.00
Losses 9 mos. To Sept $ (5.27)
   
Revenue multiples  
   
11/13 market cap/1997 revenue 486
IPO market cap/1997 revenue 109
IPO market cap/est. 1998 rev. 18
High/ 1998 estimated revenue 108
Low/ 1998 estimated revenue 39
11/13 market cap/est. 1998 rev. 79
all figures in millions except share price and multiple (c) 1998 Mecklermedia

Our analysis indicates EWBX at its IPO price of $14 valued the firm at 109x trailing (1997) revenue and 64x annualized non-barter revenue for 1998. For 1999 we estimate EWBX could generate $7 million in revenue. Market capitalization as of November 16 was $551 million, counting the options for fully-diluted shares outstanding (important since options dilute future earnings).

If so, that implies a revenue multiple of 79x 1999 revenues for the firm. EarthWeb reported a $5.27 million loss for the nine months ending September 30 this year and we see little chance of earnings in sight. Its losses for 1997 were $7.8 million.

For comparison, the stock of CNET (NASDAQ:CNWK), clearly a known leader in technology resources and news, trades at what we think is 12x 1999 revenue. Said another way, EarthWeb, with 10% of the revenue forecast for next year, trades at 57% the valuation of CNET. Further, page views for CNET averaged 7.2 million per day according to its third quarter results. We've heard EarthWeb's are much lower than that by far, yet await official word either now or when the next quarterly results are shown from EarthWeb on page views per day since the documents filed don't show it.

Until then we turn to the words of modern philosopher-king Dan Quayle who, besides leading the revolution in spelling bees, had a few words on engaging brain cells: "What a waste it is to lose one's mind, or not to have a mind." Even Dan got that right. Sorry Aristotle.



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