eMailbag Monday: Broadcast.com, InterVu, Amazon.com, VerticalNet
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Today we're answering a number of questions submitted by readers.
First reader up this week writes:
"Hello Steve, I enjoy your insight. Your column is the best research for Internet stocks around! Please comment on Intervu (ITVU). They seem to be offering the same services as BCST, and have a long list of Fortune 500 companies with which they have a business relationship. Yet their stock, and market cap, is well below that of BCST. Am I missing something?"
Reply: I've covered InterVU (NASDAQ:ITVU) before and have kept an eye on it. However, looking at it now the same problem that existed two years ago still does: little revenue. 1998 revenue totalled $1.7 million with $15.7 million net loss.
Broadcast.com is far down the road in the aggregation of audio-video business. InterVU is partly in that business and partly a software maker with its own video player software, and in development on each.
Broadcast.com uses anybody's streaming solution, it's a service. InterVU relies on its own software, which is quite good by the way. But the software angle looks fraught with deep pocketed rivals in my opinion unless you can sell it to a platform like Microsoft, AOL or RealNetworks.
As Apple can tell you, the best software doesn't always win. To me that leaves InterVU in the content network business. On a multiple of revenue basis I have it like this: BCST trading at 75x my estimated 1999 revenue for the firm while ITVU could be trading at 34x revenue. That doesn't mean ITVU is a bargain. These two companies are not an apples to apples comparison, more like apples to pears at this juncture. InterVU appears to me as more of a technology while Broadcast.com, a service.
"Just writing to tell you thanks for the great info you put out. I'm now a dedicated fan and look forward to the tips and information you provide. A few month's back I read your recommendation on CMGI. After doing some other checking I bought and have now doubled my money with CMGI. Thanks again Steve and keep it coming."
Reply: Your email triggered this song in my head with the line "baby, you ain't nothing yet." Glad you followed up with your own due diligence on the firm. Anybody investing in Internet stocks who doesn't know what they're investing in should know.
"Could you let me know the ticker symbol(s) for any stock(s) that include all the ISDEX stocks?"
Reply: As you may or may not know, we entered an agreement with the Kansas City Board of Trade for it to sell ISDEX Futures. I encourage you to visit www.kcbt.com and check out what ISDEX Futures are following the links provided. We expect them to be available soon.
"As you know the market has had quite a run the last 3 days including the Internet stocks--but Amazon has done nothing--do you think they might be pre warn this quarter and that is why the stock sits around $120?"
Reply: Since your email AMZN has broken out of the $120 range to $133. My latest thinking is the war has just begun: Amazon competes with every retailer on the planet, both land and Web based. It has built a transaction engine that gives it a lead over them. So far but it's early still. Amazon has cash, sold more than $1.5 billion bonds. Our report on Amazon.com will be published soon right here.
"Mr. Harmon, I write to tell you how appreciative I am of your fine work. I am a recent subscriber to your newsletter and find your observations most prescient. I am also owner of a position in VERT, which has increased dramatically in the last five trading days. Any idea what's going on?"
Reply: VerticalNet (NASDAQ:VERT) in my opinion seems to be the stock de jeur by daytraders who ran it up from the mid $40s to more than $100 the past few trading sessions. Others may be convinced that its focus on business-to-business translates into huge valuation potential built in.
I am a fan of VerticalNet's focus on the nuts and bolts (if boring) meatandpoultry.com, computeroemonline.com and several more verticals. Yes, business-to-business may be huge but at this point don't think VerticalNet leads that charge. The proof for me exists in execution of the promise by the company as measured by revenue and earnings growth (or closing the loss gap fast).
VERT posted just over $3 million revenue for 1998 with $13.5 million net loss. If I allocate a gracious $10 million top line for VERT in 1999 it trades at more than 170x revenue. To support that kind of valuation, to me, requires VerticalNet to grow top line to $50 million fairly quickly. From $3 million? Said another way I think VERT may be ahead of itself.
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