By Jove, Ask Jeeves Rockets On IPO

By jove, fireworks came early and valuations exploded: Ask Jeeves (NASDAQ:ASKJ) which slated a $10 target IPO price bumped it to $14, which ended its first day at $64. On a market cap basis that’s a 540% increase in what Ask Jeeves thought it was worth just a few days prior to going public and the actual aftermarket space probe. Some $1.5 billion market capitalization vs. $243 million.

Don’t ask what happened to the digital butler search engine its first day. Shares of the more natural-language search engine rocketed up 364% from its above-range $14 per share IPO through close July 1 at $64. ASKJ peaked at $77 13/16.

The new issue did better than I expected and blew past other recent newbie simple search engine (NASDAQ:GOTO).

Why? as Yahoo! (NASDAQ:YHOO), Excite (NASDAQ:XCIT), Lycos (NASDAQ:LCOS) and Infoseek (NASDAQ:SEEK) all grew wider and deeper it opened a gap for plain old search again.

Type and go. Quick. No bells, whistles, detours. GOTO shares got caught in the updraft Ask Jeeves (NASDAQ:ASKJ) created with GOTO shares climbing 30% to $36.50 July 1.

Let’s see the numbers, pre-IPO vs. actual IPO:

Ask Jeeves ASKJ Actual
pro forma IPO before IPO
Shares offered 3.00 3.00
Price target/actual $ 10.00 $ 14.00
Proceeds $ 30.00 $ 42.00
Shares out 24.35 24.35
Share price 7-1-99   $ 64.00
IPO market cap $ 243.49 $1,558.36
1Q99 revenue $ 1.13 $ 1.13
1Q99 loss $ (4.87) $ (4.87)
1Q annualized $ 4.53 $ 4.53
Estimated 1999    
Revenue $ 6.50 $ 6.50
Revenue multiple 37 240
Daily questions 1.9 1.9
Annualized 694 694
Mkt cap/annualized question $ 0.35 $ 2.25

all figures in millions except price per share, revenue multiple; valuation Steve Harmon

Since Ask Jeeves is in the per-query business and delivers 1.9 million answers daily according to its latest stats, I wanted to boil it down to the essence of the business opportunity. Essentially at the going rate Ask Jeeves generated 694 million answers, to which I would attribute a page view per answer.

Now if we take the market caps both pre-IPO and afterwards, and divide by annualized answers delivered it shows a market value per annualized answer/page at $0.35 before the IPO and $2.25 afterwards.

Let’s go further and say that Ask Jeeves sells out 25% of its pages with ads. That implies a market cap valuation of $8.98 for each of those annual sold ad pages if we count them and not the unsold against market value.

To sustain a 20x multiple that implies Ask Jeeves may need to generate $0.45 in revenues per sold page at 25% sellthough. Doable? I think so.

That doesn’t factor Ask Jeeves corporate opportunity in the customer support arena. Ask Jeeves can be tailored to respond to corporate Web site questions pertaining to that firm’s products.

And I see every company serious about its Internet presence wanting to have customer support that’s tailored and also software driven.

Even with the numbers the question remains, “is ASKJ a $1.5 billion market cap company?” As of July 1 it was. The rest is up to Jeeves to maintain or grow to sustain it.

I think the opportunity is there, but it’s execution that matters now. Otherwise Ask Jeeves looks like a company with a 240x revenue multiple looking for answers on the pop and drop.

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