Local Yocal: TicketMaster-CitySearch-CityAuction
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When CitySearch canceled its own IPO plans in favor of merging with Ticketmaster Online last August, we wondered where the fit was between city guides and event ticketing. Our thinking was the combined entity probably had to fill in some gaps between the two services to round out its offering. And so it is.
Somewhere between Yahoo and Joe's Pizza lies TicketMaster-CitySearch (NASDAQ:TMCS), hoping to catch the multi-billion local entertainment and content market through its series of deals with regional media groups and aggressive Web hosting for businesses. One gap filler is its new buy: CityAuction. 47,000 registered users, 100,000 page views a day, 115,000 auctions listed since day 1.
On Jan. 11, TMCS agreed to acquire CityAuction for 800,000 shares ($44.2 millilon based on TMCS close Jan. 21). It offers local personal auctions.
The move underscores the local Web market opportunity across a swath of content and commerce, one largely ignored or difficult to address by the larger portals/hubs as they go for bulk and not targeted info. TMCS owns seven local guide sites and media partners run nine others with two more pending.
|1998||% total revenue||1997||% total revenue|
|tickets||$ 5.8||43%||$ 1.9||34%|
|city guides||$ 5.3||39%||$ 2.5||45%|
|sponsors/ads||$ 2.5||18%||$ 1.2||21%|
|TOTAL||$ 13.6||$ 5.6|
TMCS generates revenue from three sources: ticket sales, providing turn-key Web sites for local businesses in regions its in, and through ads/sponsorships.
Fourth-quarter sales were $13.6 million, 43 percent from tickets. City guide sales were driven by Web sites sold to businesses in its markets, with the average price per month increased from $100 in December 1997 to $219 in December 1998. These contracts are 12 months. Ad banners generate only 5 percent of all revenue.
Translation: this is not another ad-based revenue model a la the large search guides. That explains why Wall Street gives TMCS a $4 billion market cap, which our analysis estimates at 68x 1999 sales, the sort of multiple that an eBay or Yahoo enjoys. But losses are heavy.
While full-year results/losses won't be released until next week, for the nine months ending September TMCS posted a $57 million loss, which we attribute to the heavy lifting in building local content/commerce enterprises.
The huge capital outlays to be a meaningful local guide has probably kept the Yahoos of the world from going truly local--that's the irony of the opportunity. But a $78 billion local ad pie with several billion more in events and other ticketing opportunities appears to be a fairly compelling potential market that dwarfs the losses posted so far. Let's see revenue:
|TicketMaster/CitySearch||actual IPO||at 1/20/99|
|Price per share||$ 14.00||$ 55.25|
|Fully diluted/1999 est. revenue||17||68|
|1998||$ 40.16||$ 40.16|
|1997||$ 15.48||$ 15.48|
|Estimated 1999||$ 60.00||$ 60.00|
|Nine mos. To Sept||$ (56.80)||$ (56.80)|
|Annualized||$ (75.74)||$ (75.74)|
|1997||$ (80.36)||$ (80.36)|
Note how ticketing jumped from 1997 to 1998 to take the lion's share of revenue. This is a trend we expect to continue. Ticketmaster Online accounted for just 6 percent of the entire Ticketmaster corporation's sales but we think that will grow to about 30 percent by the year 2001 as theater, dining, cinema, sports and music venues become more aware of the Web as channel and also as consumers come online more and more for convenience of ticketing via this channel.
For example, users can already preview "sit" in a seat and see how it looks to the stage all through a "web's eye" view of how your seat relates to the stage or venue. We think that's very powerful use of the Web.
What's next? Glancing at the entrees at the local restaurant before you make a reservation? We think so. And more.
The tie-in with Barry Diller's USA Networks gives TMCS possible cross-promotion and cross-pllination across broadcast and cable, feeding the Website(s) for buying and selling further. Ticketmaster Online receives 50 percent of the net profits on tickets sold through the Web, or about $1 profit on every average ticket sale.
Helping get TMCS in these markets is its partnering with established newspapers and media companies shortcuts the expense side and boosts marketing. Los Angeles, for example, is led by the LA Times (Times Mirror).
We asked TMCS CEO Charles Conn about how he sees things and the CityAuction acquisition:
What does CityAuction bring to TMCS?
Conn: For goods that are either heavy, bulky or fragile or very expensive, national auction sites like eBay don't provide very good opportunity. Also, face to face sales are important for trust reasons sometimes. CityAuction is about 1/20th the size of eBay and growing.
You haven't announced full fourth-quarter results but have released revenue. Tell us about revenue numbers.
Analysts expected about $9.6 million revenue and we delivered $13.6 million. All three segments were above plan.
How many page views does TMCS have each month?
Above 60 million per month. It's important to remember that's concentrated in these cities. For example, in Raleigh-Durham, N.C., we had about 2.3 million page views in an Internet0using population in that city of 300,000. So we have extremely high density of use.
TMCS operates in 16 cities today with two more coming. What's your goal?
I'd like to be in 40 cities within 12 to 18 months. We've developed a new model for rolling out cities that we think will be both faster and less costly than in the past. That's still untested.
We'd like to also extend the ticketing metaphor to smaller venues and into orgainazitions and businesses that don't do professional ticketing like small music clubs and venues.
CitySearch builds Web sites for bars and club with 100 seats and they don't have professional ticketing right now just box office.
Local e-commerce, hotel and restaurant ticketing, local auctions, other classified categories and other merchandising categories. Essentially, we'd like to be able to help you with any reason you go out your front door, whether you want information on local mountain biking trails or want to go to a Rolling Stones concert.
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