Aristotle wrote thus: “The seat of the soul and the
control of voluntary movement–in fact, of nervous functions in
general–are to be sought in the heart. The brain is an organ of minor
importance.”
That was clearly evident in EarthWeb’s heartfelt but brain
dead IPO last week that caught not only Wall Street but scores of
individual investors checking their nervous functions every few seconds.
Maybe they should have checked the balance sheet and stats closer.
While our heart goes out to the firm for rocketing to the stars, our mind
was fully engaged when it looked closer at EarthWeb’s filing document. No
mention anywhere of one of the standard metrics of any Internet company
that bases its revenue on advertising: page views. How many page views per
month does it generate? Doesn’t say. Page views are the primary delivery
vehicle for ad banners.
But the real pulse here centers on EarthWeb’s
claim of 1.4 million monthly users. Seems kind of high by our experience
with the developer market and by looking at EarthWeb’s main Web site,
Developer.com. A report, for example, from independent market metric firm
RelevantKnowledge showed that Developer.com had 147,000 unique users in
September of this year. Far cry from 1.4 million. We’ll wait and see what
EarthWeb reports or says on this before deciding what to believe.
Let’s take a look at EarthWeb’s pro forma IPO numbers on the valuation
side, with
revenue, etc.:
EarthWeb | EWBX |
Shares out | 7.90 |
Options | 0.95 |
Fully-diluted shares | 8.86 |
IPO price per share | $ 14.00 |
IPO market cap | $ 124.01 |
High so far | $ 85.06 |
Low so far | $ 31.00 |
Market cap at high | $ 753.46 |
Market cap at low | $ 274.59 |
EWBX share price 11/16 | $ 62.25 |
Market cap 11/16 | $ 551.40 |
Revenue | |
1997 revenue | $ 1.14 |
1997 loss | $ (7.82) |
Rev. 9 mos. To Sept 30 | $ 1.92 |
Of that 25% is barter | |
Revenue sans barter | $ 1.44 |
Annualized at that rate | $ 1.92 |
Projected 1999 revenue | $ 7.00 |
Losses 9 mos. To Sept | $ (5.27) |
Revenue multiples | |
11/13 market cap/1997 revenue | 486 |
IPO market cap/1997 revenue | 109 |
IPO market cap/est. 1998 rev. | 18 |
High/ 1998 estimated revenue | 108 |
Low/ 1998 estimated revenue | 39 |
11/13 market cap/est. 1998 rev. | 79 |
all figures in millions except share price and multiple (c) 1998
Mecklermedia
Our analysis indicates EWBX at its IPO price of $14 valued the firm at 109x
trailing (1997) revenue and 64x annualized non-barter revenue for 1998. For
1999 we estimate EWBX could generate $7 million in revenue. Market
capitalization as of November 16 was $551 million, counting the options for
fully-diluted shares outstanding (important since options dilute future
earnings).
If so, that implies a revenue multiple of 79x 1999 revenues
for the firm. EarthWeb reported a $5.27 million loss for the nine months
ending September 30 this year and we see little chance of earnings in
sight. Its losses for 1997 were $7.8 million.
For comparison, the stock
of CNET (NASDAQ:CNWK), clearly a known leader in technology resources and
news, trades at what we think is 12x 1999 revenue. Said another way,
EarthWeb, with 10% of the revenue forecast for next year, trades at 57% the
valuation of CNET. Further, page views for CNET averaged 7.2 million per
day according to its third quarter results. We’ve heard EarthWeb’s are much
lower than that by far, yet await official word either now or when the next
quarterly results are shown from EarthWeb on page views per day since the
documents filed don’t show it.
Until then we turn to the words of modern
philosopher-king Dan Quayle who, besides leading the revolution in spelling
bees, had a few words on engaging brain cells: “What a waste it is to lose
one’s mind, or not to have a mind.” Even Dan got that right. Sorry
Aristotle.
