“You’ve Got Netscape” AOL May Announce Deal For Netscape Today

“You’ve Got Netscape” may be the new slogan found on AOL soon if a
rumored deal goes ahead. Netscape (NASDAQ:NSCP) shares rallied on the
speculation all last week and a deal may emerge today. Having already been
bid up on deal talk it’s hard to say what kind of premium AOL (NYSE:AOL)
would pay, depends on what it acquires.

We place a private market value
on Netscape’s Netcenter, with a seller’s premium and toss in the browser
front end, Netscape brand, user base, platform leverage, then the deal
could reach $5 billion or more depending on how motivated AOL is to buy and
Netscape to sell.

AOL gets a lot of bang for the buck: Netscape is one of
the most well-known brands on the Internet; it still commands 52 percent of
browser market; Netcenter revenues are in league with Yahoo’s; Netcenter
attracts business users, something AOL is weak in. On the other hand, AOL
doesn’t need Netscape’s enterprise software division unless it plans on
taking on Microsoft Windows NT. The rumor that Sun (NASDAQ:SUNW) may take
over Netscape’s enterprise software side makes more sense as Sun’s servers
run many Web sites and it has a more business-centric approach to the
Internet market.

Over the past three years we’ve heard numerous rumors
similar to this one. The difference? Netscape no longer believes it’s the
next Microsoft, and AOL just might be.

And now eMailbag Monday.

First reader up this week writes: “I know you have talked about egghead.com
during the past year, but I would be really interested in getting your
assessment of the company’s future near-term prospects (6 to 12 months), in
light of the scalability of its new Web site (unveiled this weekend), and
the company’s potential for
greater e-commerce market share.”

Reply: Egghead (NASDAQ:EGGS) fiscal 1999 second quarter ended
September 26, 1998 revenue was up 73% to $35.1 million vs. ongoing revenue
for 2Q98. Loss for the latest quarter increased to $7.2 million vs. $4.9
million 2Q98, so there’s some issues involved in being a Web-based
“startup-like” firm.

Annualized EGGS revenue would be $140 million,
implying a revenue multiple of 2.3x. For 1999 we estimate EGGS revenue
could be $195 million, slating the revenue multiple at 1.6x. For
comparison, many Internet e-tail firms regularly trade between 5x to 10x, or

Egghead, as many of you e-mailed us about, just debuted a
“new and improved” Web site that blends its e-tail, auction and surplus sales
into an easier to use frontend.

The site also features merchandise in
other non-techie categories such as sporting goods–at least it purports
to. But our search for “soccer” yielded some crazy results including a PC
and a Iomega ZIP drive, which has zero to do with soccer.

We applaud
Egghead’s move from terrestrial-based heavy overhead bricks and mortar to
“zero G” (Internet commerce) but give it a thumbs down on trying to be a
general purpose e-tailer, especially without having the selection to back up
the pitch. See our past ISR for more, click

Broadly Speaking

“I have been on the BRCM broadband wagon since the IPO. What is the effect
on BRCM by INTC’s recent set-top box announcement? Also, if the cable
modem gets integrated into the PC, like a network card, is BRCM dead in the
water? Basically, I am asking if BRCM is going to have to fight it out in
the graphics chip segment only, or if it can retain and grow its market
share in the set-top box market even with INTC breathing down its neck?”

Reply: Broadcom (NASDAQ:BRCM) is what Intel wants to be in the
networking space, or ought to be. Intel owns a small piece of BRCM, by the
way. Our original pre-IPO analysis discusses the general outlook for
Broadcom (click
for that report). And now, here comes Intel (NASDAQ:INTC) to make
moves in making broadband chips.

As early as it is in this game,
Broadcom now has a real threat from the deep pockets at Intel, who now see
the PC as one box for silicon when multiple boxes for silicon

Even with Intel competing (or wanting to compete), Broadcom’s
lead in signing the set-top and cable industries, together with telco
firms, looks substantial. At least challenging. We think Intel should
consider acquiring Broadcom while the stock is relatively cheap to its
future potential.

Buy Or Bye?

“I have some Internet stocks, AOL, BRCM, YHOO. What has me frustrated is
this: I’d sure like to buy more Internet stocks. But I’ll think to myself,
these stocks are ridiculously high, they CAN’T go higher, it just isn’t
possible. BUT THEY DO. What the heck is an investor to do? I can’t bear
missing out on the excitement.

But I also can’t connect reality to what
I see in the stock valuations. How should an investor think about these
stocks? What is an appropriate mindset to have? Does one buy because the
market has such enormous potential, even though the valuations seem to have
already incorporated that potential? Does one buy because the enthusiasm
for these stocks seems endless?”

Reply: We don’t give individual advice but suggest you talk with
your broker or investment adviser, retirement planner, about what criteria
is appropriate for you. Generally, knowing how much risk and return you’re
willing to accept is a good step. Sometimes holding a market leader beats
holding a more risky newbie, especially if these leader stocks split and
rise again. But do what suits your goals. Don’t follow the mood of the
moment, establish guidelines for yourself and then you’ll have a better
sense of when to buy, sell or what to buy and sell based on your own
goals–no one else’s.


“Ubid: Does It Look Like a Good IPO?”

Reply: Ubid’s revenue growth looks impressive, up more than
double from June to September quarters. Nine-month revenue to September hit
$24 million. At that rate Ubid could reach $32 million annualized, putting
the revenue multiple at 4x. If growth continues we estimate Ubid could
generate $70 million revenue in 1999 putting the IPO market cap to revenue
at 1.9x. That multiple looks more in line with Egghead than eBay
(NASDAQ:EBAY) which approaches $7.8 billion (fully diluted shares
outstanding), or about 91x our estimated 1999 revenue for it. Primary share
market capitalization revenue multiple could be about 68x for EBAY.

eBay that much better or more protectable a model than the others? Doubtful
in our view. For besides revenue multiple, the way to look at Internet
stocks centers on discounted cash flow/earnings potential, management,
market size, brand presence, mindshare, alliances, user base, reach,
rivals, peers, and a few more besides.

Does Ubid’s IPO look good?
Compared to eBay we think it may, but the auction space is getting very
crowded and probably will get more crowded and commonplace.

Attention Internet Startups! LaunchPad West StartUp
Pavilion, part of Spring Internet World ’99
, one of the world’s
largest Internet industry trade shows offers exhibit space for startups
ONLY at a reduced price in order to meet their often limited capital
available at the startup stage. Contact Sean Moriarty (hurry, space
limited): mailto:[email protected]

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