Thursday, April 30, 1998

Market Guide, Inc.
(Nasdaq: MARG)
Phone: 516-327-2400
Website: http://www.marketguide.com
Price (4/29/98): $11 1/8

HOW DID IT DOUBLE?

If financial information provider Market Guide is any market guide, look out below!

Amidst the craziness that recently bid up all things dot.com, Market Guide reported it would be offering its stock reports and other financial data via America Online's (NYSE: AOL) personal finance channel. This shouldn't have been news to anyone given that the deal (terms undisclosed) had been announced in September.

Still, the stock hit the Lost in Space hyperdrive, leaving this solar system at around $3 5/8 per share and ending up somewhere in this one at prices up to $29 1/2. For a day or so, the company's stock was so far off these charts that even Celine Dion must have been envious. It's still a three-bagger in, oh, the last week.

BUSINESS DESCRIPTION

Based in Lake Success, New York, 15-year-old Market Guide is a leading provider of financial information. Its database includes basic financial data and descriptive information on 10,500 publicly traded domestic and foreign companies. Its information is used by stockbrokers, traders, investment managers, financial analysts, and individual investors.

The company distributes its products through four channels: information vendors, the Internet, Market Guide for Windows (its proprietary software), and a print publication. Information vendors include some 60 online businesses: brokers such as Ameritrade and Schwab, other information providers such as Reuters and Bridge, and the stock-oriented websites of DBC, Individual Investor Group, Lycos, PC Quote, Yahoo!, and Quote.com. Market Guide also operates its own website.

A year ago, the company launched the CreditRisk Monitor, an online service that follows more than 375 publicly held U.S. retail chains and wholesalers. It allows corporate credit managers to follow the public companies they do business with.

Market Guide moved from the OTC Bulletin Board to the Nasdaq SmallCap market in March 1997. Its competitors include Standard & Poor's, Moody's, Value Line, and Disclosure.

FINANCIAL FACTS

Income Statement
12-month sales: $6.1 million
12-month income: ($0.13 million)
12-month EPS: ($0.02)
Profit Margin: N/A
Market Cap: $52.8 million

Balance Sheet
Cash: $0.7 million
Current Assets: $2 million
Current Liabilities: $1.4 million
Long-term Debt: $0.8 million

Ratios
Price-to-earnings: N/A
Price-to-sales: 8.7

HOW COULD YOU HAVE FOUND THIS DOUBLE?

A deal with America Online is a big plus both in terms of capturing an audience for long-term growth and sending a given company's stock higher. Those quick to the draw on the launch announcement might have heard the news and ridden the stock for some of its 165% gain on April 20. Slow pokes requiring a few hours for due diligence might have still enjoyed the 189% additional gain seen the next day.

Others might have noticed back on February 20 that company director Mark B. Burka had arranged to boost his ownership position to 20% by purchasing nearly half a million Market Guide shares from other investors at a price of just over $3 each, a 21% premium to the market price at the time. (So far, Burka has only had a chance to buy 195,000 of these shares.)

Since some online brokers already provide access to Market Guide, other investors might have just looked at the tools they actually used and figured maybe these guys were well-positioned for future success.

WHERE TO FROM HERE?

Then again, no reasonable investor would have figured Market Guide, with just over $6 million in unprofitable 12-month trailing revenues, to be a candidate for a $100 million plus market cap -- at least not anytime soon. For sure, revenues rose 39% in its third quarter, but operating expenses increased by 51%.

The company has a respected brand based on accurate and clearly presented information, and Market Guide is leveraging what it's already doing into new revenue streams by expanding its distribution channels. That's smart. But its business is arguably a commodity affair, with other players offering competitive products.

In addition, with just $0.6 million in working capital at the end of the November period, it's not clear what kind of deal the company could afford to strike with America Online, which usually likes cash payments up front in addition to a share of advertising and transaction fees.

The amount of useful and free online financial information is so overwhelming that I'm skeptical that a commodity data provider can significantly boost its fee-based product sales simply by offering its wares on America Online. The only products I find even marginally worth paying for are value-added news or research. Potential advertising revenue (if that is indeed part of the deal with AOL) also seems unlikely to justify a $30 million increase in market cap.

Market Guide's surge seems due to a small float meeting up with Internet frenzy. It's enough to make a rational investor throw up his hands. Hands in air, he starts to think of setting aside a small portion of his portfolio for total speculation on outfits that could take a ride on the Internet train even when their business models leave one wondering if they'll ever make money.

Yet when clear-eyed investors start getting such thoughts, it might be time for even us online pundits to start sounding as grumpy and Chickenlittlish as Alan Abelson at Barron's. For all of Celine Dion's chart-topping success, that old Titanic still sank, and nearly everybody enjoying the party went down with it.

-- Louis Corrigan
(TMFSeymor@aol.com)

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