Monday, May 3, 1999
HOW DID IT DOUBLE?
Vroom, vroom, XOOM.com (Nasdaq: XMCM) goes zoom. Just three years ago the company didn't even exist. Six months ago the company wasn't even publicly traded. As one of the most popular online communities, shares of XOOM.com have shown a need for speed.
XOOM.com went public in December. Since then, online consolidation and the investment community's appetite for Internet juggernauts have helped fuel the wired company's share price.
A secondary offering and a failed takeover have not dampened that enthusiasm. What can you say? Speed matters.
XOOM.com was founded in September of 1996. In the short time since then, the company has won over 7.3 million members thanks to its free online services. From providing free home pages complete with chat rooms, page counters, and message boards, to Internet greeting cards, online shopping, and a decent-sized software library, the site has also attracted quite a few sponsors in the process.
The company is headquartered in San Francisco, with offices in New York City and Paris, France. A trip to the company's website runs the tally of site membership, with new members zooming in to XOOM.com at a rate of 23,000 a day.
Income Statement 12-month sales: $11.9 million 12-month income: ($13.1 million) 12-month EPS: ($1.44) Profit Margin: N/A Market Cap: $966 million Balance Sheet Cash: $52.7 million Current Assets: $55.0 million Current Liabilities: $6.9 million Long-term Debt: $0.5 million Ratios Price-to-earnings: N/A Price-to-sales: 81.2HOW COULD YOU HAVE FOUND THIS DOUBLE?
XOOM.com's timing couldn't be much better. Just a month after going public in a deal that valued the company at just over $200 million in market capitalization, fellow cybercommunity GeoCities (Nasdaq: GCTY) received a buyout offer from Yahoo! (Nasdaq: YHOO) that amounted to $3.6 billion at the time.
While XOOM.com claims 3 million more members than GeoCities, not all eyeballs are the same. GeoCities is a more addictive homestead with its 4 million members hosting 35 million different Web pages. Most folks register at XOOM.com only as a way to get to the downloadable library section or to set up a token, and sometimes abandoned, home page. Media Metrix confirms this, since GeoCities was the sixth-most-visited site on the Internet for the month of March, while XOOM.com came in at number 13.
So it's understandable why XOOM.com wouldn't be worthy of GeoCities' premium price tag. Still, XOOM.com is one of the most popular online destinations and, with 7 million members and growing, the list of sponsors wanting to get in on the company's regular mailings to members and online shopping guide has been booming. In an Internet-stock-craving market, where community is king, closing out 1998 with a paltry $455 million market cap was too cheap in relative terms. That's right, 55 times trailing sales and still an online bargain.
WHERE TO FROM HERE?
Last month's secondary offering looks a little suspect. The company already had more than $50 million in cash with minimal offsetting liabilities. The need to raise money wasn't there. However, since the shares had more than quadrupled from December's IPO price, the time was ripe for not only an unnecessary cash infusion but a chance for early believers to cash out as well.
Almost half of the 4 million shares offered were sold by company insiders. You can't fault them with the $125 million payday, but what about these underwriters? A week after the offering, BancBoston Robertson Stephens and Hambrecht & Quist predictably issued "buy" ratings. It happens all the time. One would hope that the underwriters have faith in the companies they profit from in the offering process, right? However, isn't it ironic when insiders make up a large part of the selling party? To facilitate the cash-out one week, and then turn around and tout how much more those very shares are worth the following week -- can one really serve two masters?
Aside from that, it seems as if XOOM.com was in demand. As the follow-on offering came to a close, the company conceded that it had been in talks with another party to take a significant stake in the company. They couldn't agree on the final terms. Since both the company and its insiders were more than willing to free up 4 million shares at $66 a pop, one would think that the offer was below that mark. If the interested party was knocking at the same time that Yahoo! and GeoCities were talking just three months earlier, the market price of XOOM.com would have been just half the current price.
XOOM.com is too big and growing too fast for it not to remain a viable buyout target. While the quarterly losses are widening despite the higher revenues, the company still has what Internet investors have been clamoring for -- a growing community base. So, on its own or not, the company will probably continue to rally with the best of the Internet stocks. And, of course, falter just as badly when the next correction comes around.
--Rick Aristotle Munarriz
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