Start Your Bidding

Last week we took a look at Lycos Inc. (LCOS), suggesting it may be undervalued at current levels.

Several numbers and potential deal makings brought me to that conclusion. My analysis included the company’s relative value and model success. Add in a successful and uniquely scalable business model with entrance into business-to-business (B2B) e-commerce and you may have the most undervalued and under appreciated company in Internet history… (UBID).

uBid went public on Dec. 4, 1998 at $15 per share. Shares rose to $97 before falling from grace, and now trade at $27. The fall was most likely due to an increase in the stock’s float shortly after the IPO. Creative Computers owned 80 percent of uBid until June 7, 1999, when the firm distributed its 80 percent stake in uBid to stockholders. This increased uBid’s float from 1.817 million shares to 10 million, drastically affecting uBid’s supply vs. demand premium. (Often times in the Internet space, small floats mean a lot of investors chasing few available shares. This leads to a surge in stock price as demand outstrips supply.)

I have followed uBid for some time and recently came upon the company again while looking over the Nielsen/NetRatings Top 15 ranked E-commerce sites during the holiday season, based on total visits. From the day before Thanksgiving through Dec. 26, uBid catered to 4.56 million visitors and ranked as the Web’s 14th most visited site.

uBid operates an online auction marketplace for excess merchandise and refurbished inventory. Items include computers, jewelry, clothing and attract both household consumers and businesses. Consumers bid for their own prices on products such as Sony Televisions, Eureka vacuums and Apple Computers. The suppliers, or vendors that sell their goods to uBid are provided with an inexpensive and highly efficient channel for selling excess or unique products on a timely basis.

uBid is the overwhelming leader in the business-to-consumer auction space. eBay (EBAY) is a competitor, but operates solely in the consumer-to-consumer auction space. So you’ll most likely bid for a new Sony CD player at uBid, while other people battle it out for a used 1972 8-track player at eBay. Hey, different strokes for different folks. The key is to understand and differentiate B2C from C2C…something most investors are not aware of.

So far the Internet has been great at two things: Attracting and aggregating large groups of people (users) and providing those users with the best information, offerings and prices available. Truly a democratizing experience, uBid, a buyer-driven marketplace is no different. [email protected] decided to dive in deeper.

I took the two titans of online auctions: uBid in B2C and eBay in C2C. The difference in market caps: uBid= $314 million vs. eBay’s $19.5 billion. Dividing eBay’s market cap by its quarterly unique visitors, roughly 28 million, I found that the market values each of eBay’s unique visitors at $696 (19.5B/28M). uBid’s quarterly unique visitors, 9.3 million, are valued at a mere $34 each (314M/9.3M). Even more compelling is the story of registered users. These users warrant a premium as they’re most likely conducting commerce at the respective sites. eBay’s registered users (7.7 million) are valued at $2,532 per user while each of uBid’s 1 million registered users fetch only $314.

uBid’s Net revenue for the nine months ended 9/30/99 totaled $135 million, up from $24.1 million in the same last year period. eBay had total r

evenues of $150.8 million for the same period, up from $55.2 million. Revenue growth continues to be one of the most important barometers for Internet stocks, and while uBid experienced growth of 460%, eBay grew at a much weaker 173%.

Just last Tuesday uBid announced its fourth quarter numbers. Revenue of $69.9 million easily surpassed analyst expectations, as did its loss of $0.93 per share (the consensus estimate was for a $0.99 loss). uBid also exceeded analyst expectations in registered users and customer acquisition costs, two very important Net metrics. Sort of the icing on the cake, uBid currently trades at less than 1x projected year 2000 revenue, while most Internet companies currently trade at multiples of 25 or higher!

During the quarter, uBid also entered into a number of strategic partnerships. Besides becoming the backbone of the Go Network’s B2C auction community, uBid added six new product categories: apparel, appliances, art, travel, home improvement and off-lease computer equipment. It is my contention that uBid’s proven success to date and scalable model will allow it to provide auctions for virtually every consumer product category.

The company also announced the launch of uBid Australia, a joint-venture with Liberty One. Announcements regarding uBid’s entrance into Asia Pacific and Europe should soon follow. Most impressively, on January 13, 2000, uBid announced it was entering the business-to-business auction space. So far, it has entered into partnerships with Surplus Record Inc, Cahners Business Information, & St. Joseph Equipment to provide B2B auction hubs for various industrial equipment verticals. In sum uBid is the auction engine for these B2B sites with a revenue sharing arrangement.

Is uBid undervalued? Well, there certainly seems to be a mis-match between this company and eBay. Despite faster growth, it measures less in market price to unique users, registered users and price to sales or growth. The company is scaling its model to include new product categories each quarter, expanding internationally, and uBid recently announced its entrance into the lucrative B2B auction space.

As the market leader in the B2C auction space, with a scalable model and trading at less than 1x year 2000 revenue estimates, investors might want to start bidding.

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