Out of the Corn? GeoCities IPO Beyond Dreams Soon

Forget the “Field of Dreams” slogan, GeoCities taps into the id, superego, and ego with the formula for success, paraphrasing the movie’s slogan to read “If they build it, they will come.”

Plain old-fashioned vanity meets another sure winner–give it away free–driving GeoCities to become one of the largest Web sites on the Internet, and paving the way for its initial public offering.

The Santa Monica, CA-based outfit lets people build free Web sites in real-world sounding categories such as “RodeoDrive,” “WallStreet,” and “Colosseum” among the 40 topical neighborhoods people can park their emotive and expressive selves for nought.

GeoCities seeks $72.45 million proceeds from the IPO which we estimate may represent 20% of the firm. It’s hard to say because GeoCities’ first documents filed don’t say how many shares or percent is being offered just yet. Let’s suppose GeoCities’ valuation could be $362 million, translating into 5 million shares being sold at $16 per share.

Based on that scenario, which may or may not be on target, we think GeoCities may look for a 24x revenue valuation–that’s in line with the other top 10 Web sites and the search and navigation sites such as Yahoo!, Excite, Lycos, and Infoseek. We’ll see when the next documents get filed.

Meanwhile, here’s a look at a “what if” based on GeoCities revenue for 1997, first quarter 1998, and what we think the Websteader may generate in revenue in 1998.

GeoCities boasts more than 90 advertising customers, including Acura, IBM, Microsoft, and VISA. In its first few months of landing commerce deals it has already signed on Amazon.com, CDnow, First USA, and Surplus Direct/Egghead.

On the new money flow side, GeoShops is another revenue stream that allows merchants to have a presence on its site for a $24.95 monthly fee. GeoShops allows GeoCities members to sell products and services from their personal Web sites within the GeoCities community.

For a $120 set-up fee, a per transaction fee, and an additional monthly amount equal to the greater of $80 or $40 plus a 5% commission on sales, GeoCities provides its users with a transaction authentication and processing solution for their Web-based businesses. For $4.95 per month, heavy-handed graphics fans and others who want more Web space get 25 megs.

Driving this year’s numbers could be commerce and marketing deals and the growing advertising base. The ultimate drive, however, is people. They are the magnet for creating a swirling revenue flow similar to what AOL has done in the consumer online space.

Some numbers from the firm: GeoCities grew from 10,000 Web sites under its umbrella in October 1995 to over 1.9 million in May 1998, some 15 million pages of personalized content.

Those pages attracted 14 million unique visitors in April according to Relevant Knowledge, and generated more than 850 million page views in April according to Media Metrix and I/PRO.

With that critical mass of people with twitchy thumbs and credit cards, GeoCities revenue has the ingredients to be one of the first true “interactive for interactive sake” media companies in the world.

Part of the success is due to the “viral nature” of GeoCities growth. This is not Bill Gates, John Malone, Ted Turner, Rupert Murdoch, or any other board room cowboy dictating the new media landscape. It’s everyday people–what we call “factor X”–the exponential growth that will make the Web the world’s most popular medium.

How much more packaged generic media do we need? Ever wonder why some content stocks in the spamblast news category are suffering? It’s “infoglut” and 357 channels and nothing on.

GeoCities is about tending to your own piece of the Web, one that features simple everyday media and user-generated content. This is not the homogenized and pasteurized stuff oozing daily from every media outlet (TV, radio, cable, paper, PC), it’s the future of media.

Risks? Advertising comprises about 90% of GeoCities revenue. What if its users tire of getting ads in their face?

Still unanswered is how many of those Web sites under its umbrella are old and molding? How many are maintained by users regularly?

Newbie Web e-tailer Egghead.com (NASDAQ:EGGS), meanwhile, accounted for 13% of GeoCities first quarter revenue, as the hardware and software retailer buys distribution for its products. So GeoCities has some room to grow here with more of the same.

GeoCities could open the door for a handful of rival Websteaders to go public, similar to Yahoo!’s move in early 1996 which opened the door for search engines to go public. This is not search, however, but more like “found,” people saying “I’m here, I matter, check out my creativity and sign my guest book.” It’s not about technology, it’s about people.

This is the one thing that Apple knew but forgot, and the thing that Microsoft only recently discovered. AOL has it down pat, and Yahoo!’s now tuned into it. GeoCities, perhaps by happenstance, seems to have stumbled onto the people idea front and center. It remains to be seen if it can leverage that without turning off its users.

GeoCities proved “If they build it, they will come.” But the question is, will they buy anything?

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