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Yippee City: Yahoo Makes Bid For GeoCities

Early Thursday morning, news emerged that Yahoo (NASDAQ:YHOO) had agreed to acquireGeoCities (NASDAQ:GCTY) in a stock deal valued at $3.6 billion. The Yahooligans' right to acquire GCTY comes via its agreement with the Websteader that gives Yahoo first look to buy.

At least that was what the documents said when Yahoo and GeoCities inked a co-promotional agreement aquite some time ago where Yahoo would point its users to GeoCities.

That agreement came about when Lycos (NASDAQ:LCOS) first started buying community sites Angelfire and Tripod. We recall that Lycos was also reportedly interested in GeoCities before it acquired either of its community efforts but that talk was Lycos didn't want to pay what GeoCities thought it was worth.

Which leads to this week's look at value per unique user. As a group, these top Web sites valuations gained nearly 12 percent on Yahoo, GeoCities and Excite's deals or rumored deals. Let's see WEBDEX numbers:

Internet.com's December Jan 20 Jan 27 Jan 20 Jan 27 Percent
WEBDEX Users Market cap or PMV* Market cap or PMV* User User change
  (millions) (millions) (millions) Value Value  
AOL.com* 31.0 $6,800 $7,200 $220 $233 5.9%
Microsoft.com* 27.5 $8,300 $9,500 $302 $346 14.5%
Yahoo 27.4 $28,343 $33,148 $1,035 $1,211 17.0%
Lycos 26.4 $4,501 $4,788 $171 $182 6.4%
GeoCities 19.0 $2,045 $2,359 $108 $124 15.4%
Netscape.com* 17.5 $3,300 $3,400 $188 $194 3.0%
Excite 16.5 $4,985 $5,547 $301 $335 11.3%
Disney.com 13.6 $3,300 $3,500 $243 $258 6.1%
Infoseek 12.3 $2,098 $2,252 $170 $183 7.3%
Blue Mtn. Arts 12.3 NM NM NM NM NM
TOTAL 200.1 $63,672 $71,694 $2,738 $3,064 11.9%
AVERAGE 21.2 $7,075 $7,966 $304 $340 11.9%
) 1999 internet.com *pmv=estimated private market value for website only; users, media metrix

@Home agreed to acquire Excite (NASDAQ:XCIT) last week for $405 per unique monthly user. While Excite and GeoCities are two different animals, one a guide and the other a home page provider, let's look at the value range and see what possible valuations Yahoo may put on GeoCities.

If we carry GeoCities at an Infoseek-like level of WEBDEX, it implies a valuation of about $3.5 billion. But carried at the average for the top sites shown in the table -- at $340 -- then GeoCities at 19 million users imputes $6.46 billion.

A "fair" valuation for GeoCities is always up to the haggling and arm wrestling. But overall we think GeoCities ought to command a premium somewhere in the middle. At $300 per unique user GeoCities rings up at $5.69 billion.

Why does Yahoo need GeoCities? Six words: AOL-Netscape; @Home-Excite; Disney-Infoseek. Also, we believe that buyers could be also lining up for Lycos and that Yahoo doesn't want to miss out on one of the larger Web properties that complements its index and guide.

Lycos has too many similar elements to make it as attractive to Yahoo, in our view. Said another way: GeoCities may be about the best way for Yahoo to make the reach into the new top tier players, the 40 percent overall Internet reach club.

On the downside, squeezing revenue from GeoCities with pure ads won't be easy. Overall though, if Jerry and Dave don't buy then someone probably will soon. And that's one less property Yahoo can add to its fold. Not the last property but a large one in one swoop. On the other hand, several other community sites make headway in the growth area: theglobe.com (NASDAQ:TGLO) and XOOM.com (NASDAQ:XMCM).

The game now is bulk, big bulk. We expect a powerful round of consolidation to occur this quarter leaving three or four mega players cutting a swath across content, commerce, community and connectivity.