E-Mailbag Monday: NaviSite, Garden.com and IPO Delays

NaviSite, a subsidiary of CMGI, is having an IPO on Sept. 24, 1999. Any
thoughts about this company or the potential success of this IPO?

Thanks in advance.

Reply: This one looks like a winner. NaviSite is a Web hosting, as
well as an application hosting company. In other words, the company allows
companies to outsource their Web needs.

This makes sense for many
companies, because it is typically more cost-effective and allows companies
to focus on their core competencies.

But NaviSite is not for small sites; rather it is for the complex ones.
Services include: monitoring, security, storage, load balancing, advanced
back-ups, and bandwidth. NaviSite also helps companies with e-commerce
applications, ad-serving, and transaction processing.

The market for such services is growing quickly. Forrester Research
estimates that the number of US enterprises that will go online will
increase from 1.8 million in 1998 to 4.3 million in 2002.

Forrester also
maintains that the market for managed Web site hosting services will grow
from $1 billion in 1998 to $14 billion by 2003. As for application
outsourcing, this is expected to grow to $21.1 billion by 2001.

Here are the valuation metrics:














































































NaviSite

NAVI

pro forma IPO

 
   

Shares offered

5.50

Price target/actual

$12.00

Proceeds

$66.00

Shares out

26.3

   

IPO market cap

$315.60

less working cap

$53.30

plus LTD

0

Enterprise value

$262.30

1999 Revenues

$6.60

1999 Losses

$5.80

Annualized rev.

$13.20

   

NaviSite

 

Revenue multiple

24

Rev. multiple enterprise

20

Actually, both Microsoft and Dell Computer are investors in NaviSite.

So, yet again, CMGI is ahead of the technology curve.

Seeds for Portfolio Growth

I really like going to garden.com. I understand it’s having an IPO. What
do you think of their prospects?

Reply: I like garden.com as well. Obviously, when I want to learn
more about gardening or make related purchases, the first thing that comes
to mind is the site.

The site is full of products — 16,000 in all. What’s more, the company
handles its fulfillment by using over 60 suppliers (known as the virtual
inventory system).

So far, 718,000 persons have registered with the site. For June 30, there
were 4.4 million unique visitors.

With the IPO, Garden.com should build these numbers even more. After all,
the garden market is huge. According to the National Gardening Association,
US households spent $46.8 billion on garden and lawn products and
landscaping in 1998.

I also like the fact that Garden.com has Home and Garden TV as an investor.
The alliance allows for intensive marketing on the cable channel.

Here are the valuation metrics:














































































Garden.com

GDEN

pro forma IPO

 
   

Shares offered

4.10

Price target/actual

$13.00

Proceeds

$53.30

Shares out

16.9

   

IPO market cap

$219.70

less working cap

$62.80

plus LTD

0

Enterprise value

$156.90

1999 Revenues

$3.80

1999 Losses

$13.50

Annualized rev.

$7.60

   

Garden.com

 

Revenue multiple

29

Rev. multiple enterprise

21

Finally, this IPO is expected to come out this week, which, for the most
part, has but a few IPOs. In other words, Garden.com will not get lost in
the noise.


IPO Time

Tom, I have been following the SEC filings of a possible IPO company called
Data Return Corp (DRTN). They originally filed their S-1 form on July 29,
1999. They then filed an S-1/A amendment on Sept. 3, 1999.

Originally, I saw from FREE EDGAR that they were supposed to go public the
week of Sept. 27, 1999. Now I see nothing about when they are going
public.

Should this be taken as a good sign or bad sign when there is a great delay
between filings, amendments, and a “getting lost ” about a date for going
public.

Thanks for your help.

Reply: A delay is not necessarily a bad sign. There may be a
variety of reasons. For example, the investment bankers may be overburden
with IPOs, as well as the SEC. With the many IPOs this year, this is not
uncommon.

For example, Charter Communications announced last week that it is going to
delay its IPO to October 14 (the original target date was Sept. 27).

The company is the fourth largest cable operator in the US and is owned by
Microsoft co-founder Paul Allen. Also, Goldman Sachs is the underwriter.

In this case, the delay is probably not an indication of any problems with
the company. In fact, it is expected to do quite well. Rather, the delay is
probably due to the extreme complexities of the offering.


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