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WEBDEX Shows User Values Soaring

One-two punch in valuations brings the average value per top 10 Web site user to $356, up 21% since March 24. This first punch was the consolidation parade; the second punch came from renewed enthusiasm for Internet stocks in general.

Before we get too far into the Zen of value let's peel back the table for you.

Internet.com's Feb 99 3-24-99 4-7-99 3-24-99 4-7-99 Percent
WEBDEX Users Market cap or PMV* Market cap or PMV* User User change
  (millions) (millions) (millions) Value Value  
AOL.com* 38.1 $9,250 $10,250 $243 $269 10.8%
Yahoo 31.1 $32,182 $41,794 $1,036 $1,345 29.9%
Microsoft.com* 30.9 $9,150 $9,200 $296 $298 0.5%
Lycos 29.2 $3,960 $4,238 $136 $145 7.0%
GO Network (SEEK) 21.9 $4,718 $4,729 $215 $216 0.2%
GeoCities 19.9 $3,204 $4,303 $161 $216 34.3%
Netscape.com* 18.7 $5,100 $7,000 $273 $375 37.3%
Excite 18.1 $6,722 $8,128 $372 $450 20.9%
Time Warner web sites 12.7 $1,600 $1,750 $126 $138 9.4%
Blue Mtn Arts 12.6 $1,100 $1,350 $87 $107 22.7%
TOTAL 200.1 $76,986 $92,742 $2,944 $3,558 20.8%
AVERAGE 26.0 $7,699 $9,274 $294 $356 20.8%
MEDIAN 20.9 $4,909 $5,865 $229 $242 15.9%
*=Web site asset value only; values determined by comparables, revenue, users, traffic, M&A, valuations by Steve Harmon; user counts by Media Metrix

Yahoo (NASDAQ:YHOO) jumps back into the #2 slot after a brief fling with third place. We're not counting GeoCities nor Broadcast.com in its tally. At $1,345 per unique user (see mediametrix.com for what that means) Yahoo leads the list by far. How can a gap exist that big?

Expectation. Like opening a low bottle of ketchup the world watches Yahoo like no other Internet company. Along with AOL (NYSE:AOL), Yahoo is the bellwether for pure play Internet stocks. YHOO posting $16 million net income helped a lot of value expectation feel justified.

At this juncture if you don't own AOL or Yahoo shares you're not participating in the Internet leadership position. Expensive yes but how many times have bubble makers said these two would burst and they haven't?

AOL.com value per user is for its Web assets only and not AOL online. AOL.com could fetch a much higher valuation if it was a separate stock but I feel comfortable with it at 25% of Yahoo without a deal to draw it out. Doubtful a bidder would acquire just AOL.com anyway. And given its market cap AOL itself looks more like a buyer than target.

Amazing how that happened but it fulfilled my January promise that Web firms may be buying old media firms and not vice versa. Rumor has AOL eyeing CBS. I think the deal makes sense.

What price CBS? Having analyzed media deals for years now I can say that usually "old" or non-Internet media properties get sold on EBITDA cash flow basis. Used to anyway. Since CBS is posting losses let's give it the benefit of a restructuring and 20% cash flow margins. At its current market cap CBS looks rich at 23x implied recovery cash flow.

But the old rules don't apply in my opinion. The new rule is go for audience across ALL media. In that scenario I would place a CBS value at $45 billion, as long as it's a stock deal paid for by highly-treasured Internet currency.

CBS posted $6.8 billion revenue last year, the kind of cash and eyeball reach that the bulging Internet firms would benefit from right away.

Another deal I thought made sense was CBS-Lycos, coming the other way. USA Networks is no CBS. I think sooner rather than later the smarter TV broadcasters may combine with the top Internet audiences for a continuum of content and commerce.

A better deal for AOL: take out Disney (NYSE:DIS) and what a franchise you have there end to end in every entertainment platform and in AOL dollars it looks cheap to me at $67 billion market cap. AOL's is more than twice that. Case would look good in mouse ears and Eisner could use a new media leader anyway.

Showing up at #10 again in Webdex is Blue Mountain Arts, the e-greeting card firm. Just when you thought it was strictly a Christmas anomaly...would someone make them an offer and get it over with already? We're seeing tons of Internet IPOs with zero value and here's a #10 site ripe with users...geeeesh!

Accolades:

"Fresh and provocative" -CBS Marketwatch, who named Steve Harmon one of the top Internet stock analysts and only independent one honored

"I am a huge fan of Steve Harmon's analysis" -Kleiner Perkins' John Doerr