December 16, 1999

MyPoints.com Inc.

Ticker: (Nasdaq: MYPT)
Phone: 415-676-3700
Website: www.mypoints.com
Price (12/15/99): $46 7/8

By Rick Aristotle Munarriz (TMF Edible)

How Did it Double?

In October, in one of the final Daily Trouble features, we profiled the promise of online direct marketer MyPoints.com. With the shares trading at only $11 3/4 despite claiming more than four million willing e-mail recipients, it seemed as if better days were ahead for the company.

"For patient investors," we wrote, "that might lead to one final lesson in the realm of loyalty -- one that finds many users signing up with MyPoints in the first place. Loyalty pays."

Loyalty has certainly paid for the patient investor. Well, even the impatient investor has made out quite well. As MyPoints tries to keep up with the demand for its services (it actually had to hike its rates back in October) and continues to stun analysts with outperformance (revenues for the September quarter were double consensus estimates), the stock has been dishing out some loyalty incentives of its own.

Business Description

So how does MyPoints work exactly? Through its BonusMail and MyPoints programs, which were merged earlier this year, users are welcome to sign up for free. An interests form is filled out and then, periodically, MyPoints will send out e-mail offers.

Just for opening the mail and clicking on the advertiser's link, the user will log ten points. Follow through on the offered merchandise or services, and bonus points get served up.

Once you reach a minimum of 1000 points you can choose rewards -- typically $10 gift certificates to restaurant chains like Red Lobster, Boston Market, or Chili's, or retailers like Blockbuster Video or Barnes & Noble.

The company went public in August, raising $40 million.

Financial Facts

Income Statement
12-month sales: $11.6 million
12-month income: ($38.8 million)*
12-month EPS: ($2.27)*
Profit Margin: N/A
Market Cap: $979.7 million
(*Pro forma)

Balance Sheet
Cash: $37.1 million
Current Assets: $46.5 million
Current Liabilities: $21.3 million
Long-term Debt: None

Ratios
Price-to-earnings: N/A
Price-to-sales: 84.5

How Could You Have Found This Double?

Readers of the Fool might have seen this one coming. Beyond the Daily Trouble feature, MyPoints was also selected as a Halloween Treat later in October. The company's growth was running at a torrid pace, adding about 15,000 new users a day. That placed the company in the same subscriber acquisition league as the mighty America Online (NYSE: AOL).

With word of mouth spreading and, according to PC Data Online, MyPoint's nearest competitor -- Freeshop.com -- generating less than half the MyPoints traffic, MyPoints had become the most feasible way to spoon-feed new online experiences.

The leader in a clear growth industry had to be worth something more than the $200 million in enterprise value that MyPoints was fetching during its October lows. It was. It is.

Where to From Here?

Forrester Research projects that online advertising will grow tenfold over the next five years, from 1.3% to 8.1% of the total spent on traditional advertising that calls for $22.2 billion in online marketing by the end of 2004.

Count on MyPoints to carve itself a decent slice of that pie. Between sponsors like eToys (Nasdaq: ETYS) and eBay (Nasdaq: EBAY) and even offline heavyweights like Macy's and Sprint (NYSE: FON) signing on as sponsors, the MyPoints approach appears to be validated by both online and offline big business. Proof in that regard can be found in the sales that MyPoints is generating per member. In June's quarter it was just $1.41. In September it shot up to $2.27 in sales for each program subscriber. The fact that there were 224 advertisers at the time also speaks volumes in terms of sponsor perception of MyPoints' service.

That quarter in itself was stunning. Not only were sales up 2,233% from 1998's showing -- it was also 159% higher sequentially. With the holiday ads being pushed through at a frenetic pace (trust me, I know, I'm a member), December looks to be another spectacular growth period.

That doesn't mean the company will be getting out of the red any time soon. While margins are improving, the company is still quite a few quarters away from profitability. In the meantime, investors are being rewarded for the traffic MyPoints is generating. Its growing MyPoints Shopping! area is now the Internet's third most popular merchandising portal. The company is also developing branded loyalty reward programs for companies like GTE (NYSE: GTE) and Excite@Home (Nasdaq: ATHM).

MyPoints is scoring big. Just ask any of the 5.1 million members -- 900,000 of which weren't even onboard just two months earlier.

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