eMailbag Monday: Critical Path, E-LOAN, CDNOW

First e-mail up this week asks: “Steve, do you think CTCH is a better bargain at the current price than MAIL, SWCM or CPTH? What is you take on these email companies?”

Reply: With market capitalizations for Critical Path (NASDAQ:CTPH) rocketing to more than $1.8 billion and more than 3x that since going public, with (NASDAQ:SWCM) at $1.8 billion also, with (NASDAQ:MAIL) $900 million and CommTouch at $296 million, it makes me wonder.

Right now it’s very early in the outsourced corporate e-mail game and it’s a field that I believe has some legs on it. Corporations probably don’t want to invest in huge Web efforts internally (no more than huge phone systems or phone trunks, which are outsourced to the telcos).

Another analogy is how many corporations build their own PCs internally? next to none if any. Why should they build their own mail servers? So I see a lot of potential here.

CommTouch, Go2Net and Paul Allen’s Vulcan Ventures invested $20 million in the firm, which I see as a positive sign given the reach that the two investors bring to the table. CommTouch counts 6 million subscribers to its service including, a recent IPO flyer.


“Steve, I would appreciate your long-term comments on FNCM and would you be a buyer at these prices?”

Reply: FiNet (NASDAQ:FNCM) to me may have more of a branding problem than anything in a world where E-LOAN (NASDAQ:EELN) now seems to have more momentum with revenue.

For first quarter 1999 FNCM posted $2.034 million revenue and $12.125 million loss vs. EELN’s $4.8 million revenue and $11.9 million loss. FNCM’s market cap is substantially lower than EELN’s ($327 million vs. $1.9 billion, respectively) perhaps paving the way for FNCM to be acquired by a real estate or other Web firm.

With its new-found IPO proceeds, I think E-LOAN
has more bucks to bang its brand with.

Time Warner-Sony-CDNOW

“Looks like Sony and Time Warner can’t sell their shares (in any meaningful way) for three years after the date of the merger (between CDNOW and Columbia House, owned by Sony/Time Warner). Am I missing something?”

Reply: News last week had Sony and Time Warner’s Columbia House music buying club merging with CDNOW (NASDAQ:CDNW). I think the move bodes well for CDNOW with the two record giants reach and clout, not to mention Columbia House’s installed customer base.

For no matter how a customer is buying, whether direct mail or Web, I see in the future that the Web will be the channel for all the leading direct-mail sellers. So Columbia House (16 million users), which expects $100 million revenue this year and CDNOW, with a forecast $35 million 2Q revenue, may make a great combo.

CDNW shareholders will own 26% of the pro forma company which as of Friday valued the combined entity at $2.8 billion market value (taking CDNW’s market cap/24%).

Sony and Time Warner have said they want to make the combined company a music and video supersite for their respective products.

The real key to me on properly valuing if 24% is worth a song or more is who the CEO is that the company says it wants to hire. Talent that’s able to keep an Internet outlook and sheer innovation is rare. The new CDNOW, assuming the merger goes through, will have its toughest act to book yet in that slot, its center stage for the future.

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