First reader up this week writes:
“Dear Steve: morning report (5-14) referred to the fact that the Net may have a lot of pages added /day. I agree and find myself using Miningco.com more often because I can’t keep track. What do you think of this stock as an independent or
takeover? If you have written about it, please point out when and where, I’m a recent user and investor on the
Reply: MiningCo (NASDAQ:MINE) changed its name to About.com, which I kind of like by the way. I find the value of a human guide to the Net with a pro and con. Pro: maybe they’ve filtered and found the better sites. Con: maybe they don’t know which sites are the best, how do I know they are experts?
Is About.com a takeover target? Every Internet site or company is a takeover target. About.com has attractive qualities which include traffic and users and a somewhat unique twist by having people select sites.
Ultimately the top 25 Web sites to me may be considered acquisition targets. About.com (MiningCo) was ranked 24th in March vs. 27th in December according to Media Metrix.
“My question relates to Comdisco, previously known for disaster recovery and computer leasing but currently in the midst of a major makeover. Does CDO have a decent shot at being exodus/verio/covad/rhythms, but at a much cheaper price? Not to mention its venture portfolio.”
Reply: At this point I believe Comdisco (NYSE:CDO) has one element that’s more attractive to me than the others: its venture group. So it’s worth mentioning. Since inception Comdisco Ventures has or has had a 40% exposure to Internet/networking, with another 19% in software. More than $750 million invested in more than 300 companies in these areas.
Its ventures in general also include hardware, biotech, others with $1.3 billion and 581 deals.
We haven’t even discussed Comdisco’s other divisions. While I think it’s too early to call CDO an “Internet” stock I have a hard time believing this one isn’t worth more than its current market capitalization by orders of magnitude.
“What is your opinion on the cyber travel companies like PTVL, PCLN?”
Reply: Preview Travel (NASDAQ:PTVL) seems to have turned a corner with management but I think the stock is fairly valued at about 15x annualized revenue. Priceline (NASDAQ:PCLN) sales growth looks impressive with more than 7,000 airline tickets being sold recently in one day. The strength of Priceline is the model, one which empowers Internet users, clearly a model that cannot exist anywhere off the Net. The weakness of the model is its reliance on airlines. PCLN also looks kind of frothy at more than $18 billion market cap and 85x sales, Captain Kirk or not.
“When you determine the market value of a customer, what sales volume and profitability is implied from that valuation? Given that, what slice of the market, at what profit margin is necessary to justify current prices for the biggies, e.g., eBay or Amazon?
For the long term the market is the best mechanism for pricing companies. Hysteria and irrationality are always bled from the system . . . eventually. Though I haven’t done the math, I expect that only the eventual market leader/category killers can justify these otherwise silly multiples of sales, e.g. yahoo! at 50x earnings.”
Reply: It depends on the number of competitors in the market as to what percentage I allocate to determine its valuation. Net margin is also variable, there is no one size fits all valuation as these are sector driven.
However, category leaders should command a premium in my book since they define the space more than play catch up.
In the guide space I think having 50% of reach of the overall market today with at least 15% to 20% net margin defines a leader like Yahoo quite clearly.
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