January 1996 I was at industry conference Demo and watched the parade of
companies come on stage to showcase their story to the world. One of them
was a firm that allowed simple inputting of questions and supplied an
immediate response.
A well-known venture capitalist friend of mine asked me
what was the hottest demo of the show. I replied the simple answer
firm.
Three and a half years later a similar firm is going public to much
acclaim: Ask Jeeves. The venture friend missed this one.
Jeeves allows you
to ask, for example, “how’s the weather in London?” or “what is the prime
rate?” or more important questions like “who was Lassie?”
An immaterial portion of revenue comes from a corporate Ask Jeeves product
launched in December designed to run customer service queries run via the
Web. “Which is your fastest CPU?” may be something a chipmaker may use, for
example. Or “does that car come in blue?”
The company sells ads, which
make up most of its revenue.
The search itself returns results in the
form of answers and also links from having ‘meta-searched’ several search
engines such as AltaVista, Yahoo! or WebCrawler. In the Lassie example it
yielded Lassie video finds for purchase, although the question wasn’t asking
to buy a video. Suggestive e-tailing.
Ask Jeeves falls short on questions
like “how’s the stock market,” or “how are Internet IPOs lately?” that
reveals one of the key weaknesses of the model.
So I asked my abacus to
crunch a few numbers. It replied that Ask Jeeves seeks a $243 million IPO
market capitalization, at the $10 per share target price.
I estimate that
Ask Jeeves may generate $6.5 million revenue for 1999, better than run rate
on first-quarter numbers. On a value per page view (using the company’s 1.9
million queries as page view source) I show ASKJ’s IPO market cap at $128
per page view, about double an Infoseek market cap per page view. That’s a
lot of commerce and ads that ASKJ will need to deliver to sustain that
premium I believe.
| Ask Jeeves | ASKJ |
| pro forma IPO | |
| Shares offered | $ 3.00 |
| Price target | $ 10.00 |
| Proceeds | $ 30.00 |
| Shares out | 24.35 |
| IPO market cap | $ 243.49 |
| 1Q99 revenue | $ 1.13 |
| 1Q99 loss | $ (4.87) |
| 1Q annualized | $ 4.53 |
| Estimated 1999 | |
| Revenue | $ 6.50 |
| Revenue multiple | 37 |
| Daily questions | 1.9 |
| (page views) | |
| Value/page view | $ 128.15 |
all figures in millions, except share price and multiple
The IPO market cap implies a 37x revenue multiple, already a premium on a
revenue multiple basis to the more established search engine peers such as
Infoseek (NASDAQ:SEEK) and Lycos (NASDAQ:LCOS).
But my instinct says that
ASKJ may pop and get attention similar to how simple search engine/ad
placement auctioneer GoTo.com (NASDAQ:GOTO) did a few weeks ago.
GOTO
went as high as $28.50 per share and closed June 28 at $22 with a market cap
of $977 million. Revenue for GOTO in first quarter was slightly better than
Ask Jeeves.
If that holds true then ASJ could see upper $30s on a market
cap basis. My thinking is that retail demand may not push it that high,
however. Maybe it finds holding ground in the upper $20s, given the market’s
weakness lately for Internet stocks.
Pros: natural language queries; simple; straightforward; lots of potential
unrealized
Cons: too simple; to limiting; basic answers; low barriers to entry for
rivals
Indeed, half of the $30 million it wants to raise on IPO is slated
to build Ask Jeeves brand, both online and offline.
Let’s examine the core
again. General questions are handled well but specific ones or questions
posed in “un-natural language” may cause Jeeves to sneeze.
It assumes
users ask natural language questions in a simple format. Another drawback as
I see it is the one-liner questioning it allows–what if you want to ask
more than one question. How’s the weather in London and which hotels are
near the Thames River?” No answers. Jeeves (a butler logo is the company’s
mascot) is a one-question kind of guy. Don’t ask Jeeves too much at once.
|
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