I have also been a bit puzzled about JWEB's valuation but I have now come to understand that it is about eyeballs. Think about it, they have over 7.0 MM people using their e-mail service. The following is Steve Harmon's take on NetZero, a U.S. based free ISP that filed its S-1 yesterday. He is suggesting that JWEB may switch to a free service.
fnews.yahoo.com
Thu Jul 15
NetZero IPO, More Than Zero?
By Steve Harmon
Senior Investment Analyst internet.com
"Where Wall Street Meets The Web"
Another of idealab's ideas is making its way to Wall Street: NetZero filed its first papers yesterday for IPO. The 'freebie give you Internet access if you'll view the ads and fill out a personal profile form service' has 1.17 million users in its first 8 months of operation. That just about matches the subscribers of oldtimer ISPs Earthlink (NASDAQ:ELNK - news) or Mindspring (NASDAQ:MSPG - news) --without the subscriber revenue, however. Big difference.
NetZero's claim to fame is it gives users a free PC, "free" being the focus word. Free if you consider sharing your personal info and enduring ad impressions in return for the box and net access.
In its latest quarter NetZero posted $903k revenue and $7.1 million net loss. Under 'Sources of Revenue' in the filing it's interesting to note the wording: SOURCES OF REVENUE..."We generate, or plan to generate, revenues from the following services."
Planning to generate revenue via sources. Hmmm. Maybe not so far-fetched if you think about 1 million users eyeballs glued to the PC getting ads, commerce pitches, sponsorship offers, direct marketing emails, bombarding them.
Consider that AOL basically sells sponsorships, displays ads, does some direct marketing. 17 million people subscribe to AOL. And pay AOL $21.95 per month.
While the early documents I reviewed don't specify the number of shares outstanding I estimate NetZero may find a market capitalization in the aftermarket in the Juno (NASDAQ:JWEB - news) range, about $900 million, despite Juno having substantially more revenue and users at this point. Juno provides free dial-up email services (an ESP, email service provider). I expect Juno to turn the switch on for free Internet access also since it's not difficult for Juno to do.
As far as pricing this at IPO I would value each user of NetZero at about $250 each, which is the median value per unique user for the top 10 Web sites.
NetZero is a long way off being a top 10 Website but I think the value per user applies somewhat. For comparison, in the pay ISP space, EarthLink is valued at about $1,400 per subscriber or about 470% more on a user to subscriber basis.
But keep in mind, and it should be stressed again, that the comparison is not apples to apples, more apple leaves to apples, with the pay service generating much more cash flow. In fact, EarthLink reported its second-quarter revenue July 14 of $78 million vs. $37.9 million 2Q98.
Without a monthly subscriber fee NetZero will have to deliver many more than the current 830 million ad impressions delivered in June to 613,000 active users that month. I expect that idealab's $7 million acquisition of defunct Pointcast could serve some advantage with NetZero as a way to deliver and track results. idealab owns 31% while Draper Fisher Jurvetson owns about 16% before the IPO. Compaq owns 8.7%.
Overall, I've always thought that the value of the entire food chain from ISP to user and back lies with the user. If NetZero can get to the 5 million or more level then I think it has something. Getting there from here requires that AOL, EarthLink or Mindspring sits still and does nothing to change their fee system, that NetZero can grow its brand recognition, and that it can maintain its users to deliver those ads and marketing impressions--its bread and butter.
If not then the term NetZero could take on a whole new meaning. Overall I think NetZero may get there, just as Dixon's in the UK (another upcoming IPO) has changed access in the UK forever. |
