eMailbag Monday: DisneySeek, Digital River, SNAP, GeoCities

First reader up writes:

“ Any comment on this Internet portal….the beta version looks
good, the stock seems like a good buy, as you know it has gone through the
$50 barrier. Any comments?”

Reply: We think Infoseek (NASDAQ:SEEK) may be undergoing a
radical transformation in its new endeavor with Disney. The $50 “barrier”
refers to Disney’s warrants to acquire more SEEK shares but that’s what
Disney has the right to pay but if you consider the value it brings to the
shares that may imply a higher valuation to the public.

It’s extremely
difficult to quantify what the value of Disney’s endorsement, marketing,
alliance, partnering, branding, exposure and global presence could be to
SEEK. These are intangible benefits of the deal.

When the Disney-Infoseek
deal was first announced we believed strongly that SEEK could be
tremendously undervalued, especially relative to its peers. SEEK was also
one of our 1998 “stocks to watch” (see ISR, 12/31/97 in Archives). We
believe the deal could have spelled out the value better to SEEK
shareholders. The value of Starwave, for example, which Disney put in its
interests in as part of the deal.

On the beta of “” it looks a lot
like every other content aggregator on the Web today so we are a little
disappointed by the lack of a fresh approach from the powerful creative
forces at Disney.

That said, this is a beta. The real value of the
agreement between Disney-Infoseek probably won’t emerge until after 12
months of them working together, after they apply some marketing muscle and
combined brain power to the endeavor. Anytime Disney gets involved
expectations run high. That works both for and against it.

Digital Creek?

“Steve: Digital River surged in the month of December. The future to me
looks very profitable with the huge worldwide market that ESD will open up.
It seems that investing in Digital River is a no-brainer and an opportunity
that I am determined not to miss. Is this a correct assumption or will the
growth of Digital River be held up by stiff competition (who would that
be?) and the slow advancement of faster network technology like broadband?”

Reply: We’ve always liked Digital River’s (NASDAQ:DRIV) model of
an affiliate network which is something the Web does well (look at Amazon,
CDNow or any e-tailer and they all do it). Digital River’s focus is software
without the box, it lets other Web sites sell software and get a small
commission while Digital River powers the store and takes the largest cut
of the sale. So far so good in our view.

December 24 DRIV said it
completed its secondary offering December 10 of 3.45 million total shares
at $23.50 per share including the over allotment exercised for an
additional 450,000 shares. While DRIV shares suffered from the shares out
dilution we think that the new cash could help propel Digital River into a
next-generation online software supernetwork. Of shares sold, 1.75 million
were from the company and 1.25 million from certain stockholders.

think the biggest possible competition, and it may or may not emerge, could
be software developers selling directly for themselves. Seems unlikely now
but if the Web ever gets taken over by software robots and shopping search
engines (Junglee is one example of something that may foreshadow this) then
virtual stores may replace affiliate networks.

Snap IPO In ’99

“First I would like to know what you think of Broadcom as a long term
investment. Also, do you think there is a possibility of CISCO acquiring
Broadcom (I understand CISCO already has a small interest in

Second, I heard that the SNAP portal may be an IPO in 1999.
Does that mean if I own 100 shares of CNET I would get 50 shares of SNAP in
a spin-off since CNET jointly owns SNAP along with NBC?”

Reply: We think Intel (NASDAQ:INTC) may make the perfect Broadcom
(NASDAQ:BRCM) acquirer and said so in our first Broadcom analysis before
its IPO – (click
here to see that report
. A chip is a chip. Intel is the king of PC
chips. If Broadcom is the princess of broadband chips maybe that’s a
Cinderella story combo in the making.

About SNAP, we think NBC (which has
taken the reins on it) has a long way to go to turn it into a page view and
revenue generator to get Wall Street’s attention. CNET shareholders
receiving part of SNAP equity is up to CNET if and when a SNAP IPO ever


“With the solid and sound background of GCTY, wonder how come the price so
low and stagnant compared to others Internet stocks. What’s wrong with

Reply: Don’t think anything is necessarily “wrong” with GeoCities
(NASDAQ:GCTY) it’s just in the process of building out its revenue model
in our opinion. The pop up banner ads are annoying and the constant “g”
logo on the lower right is an attempt to be more like TV in its branding
but stutters as it hovers over the page.

We see a lot of potential with
the overall metaphor GeoCities is but we don’t think it’s as a portal clone
or as an advertising-based company.

Through December 21, Steve Harmon’s top 10 Internet
stocks to watch in 1998 were up 350%…for 1999 Steve Harmon’s Hot Stock
Watch will be available as a monthly e-newsletter. It will feature analysis
on the Hot Stocks, with a heads up about new movers who could do some
shaking on Wall Street — interested? put “HotWatch” in subject header and
email us now —yes, tell me more
about Steve Harmon’s HotWatch ’99

  • Dozens of people have already shared what they think to be the
    biggest Internet industry moment of 1998, either personally for you or for
    the industry as a whole – results published here December 29… please
    click and add your thoughts now
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