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Friday, August 6, 1999

Multex.com, Inc.
(Nasdaq: MLTX)
Phone: 212-859-9800
Website: www.multex.com
Price (8/5/99): $17 5/8


Investors ate up Multex.com when it came public in mid-March at $14 a share. And why not? Like a delicious Chex mix, Multex offers a variety of tasty online investment research for individuals and professionals.

But the buying binge that pushed the stock to $71 per share by mid-April led to an extended purge worsened by a general slowdown in online trading and changing psychology among investors in all things Internet.

Feast has become famine, especially for Internet companies that aren't turning a profit but seem determined to spend more than expected on sales and marketing to grab more customers today.

Multex falls into that camp because its Multex Investor Network (MIN), which sells Wall Street research reports to individual investors, has been a stunning hit, claiming more than 500,000 registered members since its launch last November.

Given that success, Multex now wants to spend an additional $10 million, both this year and next, to build its brand with individual investors. While losses should bulge this year before narrowing next year, the losses overall should be higher than forecast just a few months ago.

Still, losses for the first half of 1999 have been in line with estimates while revenues have beaten projections, growing by 85% year-over-year in Q1 and 96% in Q2. Even better, Multex announced June 23 that it would scoop up the profitable Market Guide (Nasdaq: MARG), a respected provider of corporate financial data. The deal should enhance the company's proprietary product offerings while creating cross-selling opportunities.

Multex was just way ahead of itself when it soared to a market cap of $1.7 billion. Investors who pigged out should have expected the ensuing indigestion.


Multex.com provides online investment research and information to a broad spectrum of consumers, from its core constituency of professionals (portfolio managers, investment banks, and brokerage firms) to the growing number of individual investors interested in taking a look at what Wall Street's Wise are thinking, but on an a la carte basis.

The company's database includes more than 1.5 million research reports on more than 20,000 companies. Reports come from more than 500 investment banks and brokerage firms, including the top firms in the US, Europe, and Asia, such as Merrill Lynch (NYSE: MER), Morgan Stanley (NYSE: MWD), Goldman Sachs (NYSE: GS), and Salomon Smith Barney -- a subsidiary of Citigroup (NYSE: C).

Research is delivered via four channels. For an annual per-user subscription fee of $1,000 to $3,540, MultexNet offers money managers real-time access to investment research from more than 500 firms. This service had 3,700 paying subs at the end of Q2, with additional discounted subs through Bloomberg and Reuters Group (Nasdaq: RTRSY).

For $150,000 a year per installed system, MultexExpress allows brokerage firms to distribute research to their employees or select customers via the Web. Thirty-five systems were in place at the end of June.

Multex Research-On-Demand serves corporations, financial institutions and advisors, professional service firms, and libraries on a pay-per-view model. Individual reports are priced at $10 to $150 each, or at a discounted rate for those paying a flat annual fee. More than 450,000 reports from roughly half the firms participating in MultexNet are available through this service.

Finally, a somewhat smaller subset of these research reports can be accessed pay-per-view by individual investors who sign up, at no charge, for the Multex Investor Network. Multex also makes money from ad and sponsorship revenues for this developing financial research portal.

For FY98, MultexNet brought in 41% of revenues, MultexExpress 35%, Research-On-Demand 21%, and MIN just 3%.

Insiders own 49.7% of the stock.


Income Statement*
12-month sales: 18.5 million
12-month income: ($12.5 million)
12-month EPS: ($0.66)
Profit Margin: N/A
Market Cap: $428.8 million
(*Pro forma, assuming conversion of preferred stock prior to IPO.)

Balance Sheet
Cash: $21.6 million
Current Assets: $64.8 million
Current Liabilities: $10.6 million
Long-term Debt: None

Price-to-earnings: N/A
Price-to-sales: 23.2


Internet mania to the contrary, it's not shocking to see a stock sell off severely after tallying a 400% gain in just one month. Even for a company delivering nearly triple-digit revenue growth off of a small base, a price-to-sales ratio of 110 should have looked extremely rich.

In addition, Multex has done nothing but lose money -- $9.7 million last year, a total of $32.1 million through 1998, and another $6.9 million so far this year. More losses were clearly in the cards given that sales and marketing expenses jumped 117% last year to $7.6 million, or 58% of overall revenue. And, that spending didn't even include a high-profile branding campaign for MIN.


While Thomson's First Call and other services distribute brokerage firm research to institutional investors, no one else has offered individuals such a broad selection of easy-to-access Wall Street research.

And, as anyone reading this Trouble knows, individuals are crashing Wall Street's club, using the Web for low-commission trading and searching it for reliable, insightful sources of financial data and analysis.

MIN is positioned to serve that constituency of do-it-yourself investors. Registered users soared 82% sequentially last quarter, from 252,000 at the end of Q1 to 460,000 at the end of June. New members are coming on board at the rate of 15,000 per week. Given the expected boost in brand marketing, MIN should top one million registered members by year-end.

It's too early to guess what percentage of members will buy reports or at what rate, but a total of 4 million reports (both free and for pay) were downloaded through mid-July. Many investors may still find $10 per 3-page brokerage report too expensive. On average, though, $40 in annual revenues per year per active member would seem a reasonable three-year target.

For now, the growing user base is already translating into increased sponsorship revenue from the likes of Salomon and Gruntal & Co. That partly explains why MIN is the company's fastest-growing unit, accounting for 13% of the company's $11.1 million in year-to-date sales.

Multex has recently signed a spate of multi-year deals to become the "exclusive provider of co-mingled brokerage research" for the likes of Yahoo! (Nasdaq: YHOO), America Online (NYSE: AOL), Marketwatch.com (Nasdaq: MKTW), Intuit's (Nasdaq: INTU) Quicken.com, Excite@Home (Nasdaq: ATHM), and TheStreet.com (Nasdaq: TSCM). A new affiliates program allows firms like Free Edgar and PC Quote (AMEX: PQT) to link to MIN research reports.

Yet, there are some major caveats. For starters, First Call and Thomson's Investext Group have exclusive distribution deals with numerous top Wall Street firms, putting Multex at a competitive disadvantage.

Also, while Multex's sponsors like Merrill offer timely free research, well over half of Multex's hundreds of information providers permit their research to be sold pay-per-view only after a 15-day embargo period. That allows their clients to read and act on their analysts' recommendations long before the average individual investor can get her hands on the research via Multex. The rest of Multex's providers currently don't allow pay-per-view sales at all.

Also, since Multex is primarily a non-exclusive distributor of other firms' research, it must pay those firms a royalty on sales. These research providers can generally terminate these distribution arrangements or raise prices as they see fit. A growing user base would enhance Multex's negotiating position with its research partners, but for now the company remains vulnerable on this score.

The need to improve and expand its self-generated research reports -- such as the recently launched weekly magazine, The Internet Analyst -- partly explains why Multex is acquiring Market Guide, a company that provides numerous online investment sites with easy-to-read financial highlights for 12,000 public companies. Market Guide has $9.5 million in trailing revenues, $1.6 million in net income, and $0.32 in earnings per share. It also has more than 100 distribution partners.

The deal, expected to close in Q4, calls for each of Market Guide's 5.6 million shares to be swapped for one share of Multex. At the current price, that values Market Guide at $105 million, or just 11 times revenue. That's a bargain for a profitable Internet company operating with 17% net margins and growing revenues at 32% year-over-year as of Q1.

Though Multex shares will probably remain volatile, Multex should be able to take advantage of the disaggregation of investment research and brokerage commissions longer term. So, online investors using Multex to research stocks may find it worth their while to research Multex itself.

-- Louis Corrigan

Call Your Boss a Fool.

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