Tuesday, August 12, 1997

Excite
(Nasdaq: XCIT)
Phone: 415-568-6000
http://www.excite.com
Price (8/12/97): $17

HOW DID IT DOUBLE?

Interesting name. Internet search engine. Soaring stock price. Deja vu or Yahoo! deux? Like the recently profiled Yahoo!, Excite has certainly earned its moniker.

Stealing pages from the Yahoo! playbook, Excite shares have more than doubled since May after striking deals with the likes of NETSCAPE (Nasdaq: NSCP) and AMAZON.COM (Nasdaq: AMZN).

BUSINESS DESCRIPTION

California-based Excite provides a variety of navigational tools for the Web, including customizable and regional search aids. The company provides free Internet search services on its advertiser-supported web pages. Excite is the second most popular navigational site behind Yahoo!

AMERICA ONLINE (NYSE: AOL) owns 20% of the company. In June, INTUIT (Nasdaq: INTU) bought a $39 million stake in the company and teamed up with Excite to launch a personal finance channel. The Excite Network includes Excite, WebCrawler (recently purchased from America Online), Excite Travel by City.Net, and Magellan.

FINANCIAL FACTS

Income Statement

      12-month sales: $27.6 million
      12-month income: ($32.1 million)*
      12-month EPS: ($2.65)*
      Profit Margin: N/A
      Market Cap: $212.5 million
      (*Pro forma excluding one-time charges)

      Balance Sheet
      Cash: $42.2 million
      Current Assets: $52.8 million
      Current Liabilities: $20.4 million
      Long-term Debt: N/A

      Ratios
      Price-to-earnings: N/A
      Price-to-sales: 7.7

HOW COULD YOU HAVE FOUND THIS DOUBLE?

By the time Yahoo! had doubled earlier this year, Excite was still skimming the lows. In late April, shares of the smaller player were lingering at $7 1/2 while Yahoo! stock had more than doubled.

While Yahoo! seemed to be cutting all the major deals, investors were quick to dismiss Excite. Pity. As Yahoo! was proving the cynics wrong, showing Wall Street that a company can turn a profit selling cyber-billboards on proprietary web pages, others like Excite and LYCOS (Nasdaq: LCOS) should have gone along for the ride. Even if the search giant was the one landing the choice accounts, it was actually validation for the entire industry.

This was not a monopoly. As more confused users got connected to the Internet, there was ample room for competing guides. These companies had already begun differentiating their content specialties to cater to select niches. In Excite's case, its engine allows for wider search capabilities by having users identify concepts rather than single keywords.

So, if money was pouring into Yahoo!'s coffers and the business plan was viable, it had to ultimately trickle down to the next largest player, Excite. And it did.

Amazon.com cut a multi-million dollar advertising deal with Excite, similar to the one the cyber-bookseller struck with Yahoo!, and Netscape formed a partnership with the company to offer an international version of the same Netscape Guide that was awarded to Yahoo! domestically. Investors got excited.

Excite was simply following the trail Yahoo! had paved months before. The result of the expedition was the same -- a hike to a double.

WHERE TO FROM HERE?

Excite is averaging a mere two pennies in advertising revenue with every page view. While that may not sound like a king's ransom, for a company that is now averaging 16 million hits daily, that is potentially more than $100 million in sales a year. And thanks to their specialized channels, where the ads can be more effectively targeted, some deals are now coming in at close to four cents per view.

Yet the company is still losing money, unlike Yahoo!, which turned profitable late last year. Earlier this month, Excite's CEO George Bell said that he expected the company to break even in eight months. That should help put the company in a fairer light to be valued against Yahoo!

Yahoo! gets 140% more page views than Excite, yet is valued at more than 750% the market cap the smaller player is currently commanding. Then again, Yahoo! also has equity in its brand name that has allowed it to enter into lucrative related ventures. Lycos, which is third on the popularity poll, is also valued marginally higher than Excite.

Lycos, like Yahoo!, has been able to parlay its brand name into publishing deals. Excite is trying, and the ventures with Intuit and Netscape should go a long way to help broaden its reach and establish the company as a marketable household name in more than just select cybercircles. Then Excite may truly live up to its name.

-Rick Aristotle Munarriz (tmfedible@aol.com)

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