Valuations are relative. Einstein said it thus: “Try not to become a man
of success, but rather try to become a man of value.”
And with Internet stocks lately it’s been all value and physics, relatively
speaking. Relative to time, market, distance and the caffeine quotient on
Latest spin: we took the latest quarterly revenues for almost
a dozen Internet content congregators and out popped an average 32x revenue
trading multiple for the group shown. Which only proves averages are
|) 1998 Mecklermedia, all rights reserved.|
The stock with the highest market capitalization to revenue was GeoCities
at north of 100x.
To be fair, the annual or calendar revenue for many
shown likely could exceed its latest quarter times four. For GeoCities, for
example, we project $15 million revenue for 1998 which implies a more
modest (but equally stellar 64x market cap-to-revenue.
Second on the valuation juke box is Broadcast.com (NASDAQ:BCST) which we
consider to be
overvalued relative to the broadcast industry, its lack of brand value, and
the impending competition we expect from traditional broadcasters. A 75x
revenue multiple for BCST seems a tad high at this transitional and ultra
nascent juncture for Internet broadcasting.
It took CBS 50 years to reach
a valuation of $5 billion. Despite what many would have you believe, we
think BCST may have at least two or three years to prove itself on Wall
Street. In Internet years that translates into about 20 years in the TV
Yahoo! at 55x comes with some justification that the leading Web
destination ought to command a premium of some sort. But what happens if
Microsoft (NASDAQ:MSFT) buys its way to the top of the leading rankings?
How will the Street react if it goes to number two? Or if Softbank (which
owns a third of YHOO) doesn’t feed the kitty with ad deals coming from its
portfolio of firms?
Lycos has bought its way to the top of the community space and trades at
what looks like a more humble (relatively speaking) 19x annualized
quarterly revenue. Turning freebie Web page-makers (freeloaders by any
other name) into customers may prove somewhat of a challenge, we suspect.
People who sign up for free usually want more for free.
That said, we
also believe that Lycos made a smart move by consolidating a large portion
of the community arena to hedge its bets against being a pure guide service.
Search is dead, a commodity that generates few relevant results. There’s more
indications that there’s a long way to go to user-friendly content and
commerce services–a long way. Search today is like going to the
supermarket for milk and the grocer tossing orange juice, coffee, soda,
water, and some curdling liquid in your direction.
The three stocks in this group that we think hold some sort of “sane”
valuation could be Infoseek, Netscape and Sportsline. Infoseek if it can
live up to Disney’s glamour machine (and update its stale Web site);
Netscape by the fact that its Web site alone could fetch $1.9 billion or so
from the right buyer and the software side perhaps $1.5 billion; Sportsline
on the promise of it leveraging the superstar portfolio Web sites it has
the rights to. Tiger, Jordan, Nameth to name a few.
For all the valuation questioning we’ve been doing, however, please keep in
mind that these 11 companies’ combined market capitalization totals $44
billion or a meager 16% of the market capitalization of PC software king
Microsoft, which, by the way, trades at 16.9x its latest Q times four. Or
as Einstein may have equated it: e=mc2=PC=web=MSFT.
ternet Investment Symposium ’98 @ Fall Internet World!
New York City, Oct. 8-9 as Steve Harmon talks investments with some
of the leaders in the industry…top execs of GeoCities, CMG Info,
DoubleClick, venture capitalists doing the $ billion deals, debuts hot
startups at Startup Live!, and debates ups & downs of stocks with the
leading Internet stock analysts on Wall Street (Steve was one of them)
selected by CBS MarketWatch!”