MyPoints.com --
A Treat*

By Rick Aristotle Munarriz (TMF Edible)

Trading at $15 3/4 as of October 25, 1999

I'm dot com jaded. Whenever I stumble across some new eIPO, I go into cynic mode. Why, this company is not bringing anything new to the table. Hey, this company will never turn a profit. Wow, who could have funded this dud in the first place?
I felt a bit different when MyPoints.com went public in August, because, you see, I'm one of its 4.1 million users. I knew, firsthand, that they not only built a better mousetrap -- but built one efficient enough to land a rat like me.

Let's get into what MyPoints does exactly. The company runs an online direct marketing program. Through its BonusMail and MyPoints programs, which were merged earlier this year, users sign up for free. They send MyPoints their interests 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 10 points. Lucrative discounts and/or bonus pointage serve as an incentive to nurture a relationship with the sponsoring merchant. However, that is strictly voluntary.

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.

Everybody wins. I, the user, who has established a knack for deleting unwanted spam, am suddenly receptive to unsolicited offers because there is something in it for me. The company offering the reward is gaining an incremental sale (since a 10 spot at Olive Garden won't get me and my family very far). The sponsor company is getting a foot in the door via MyPoints' creative battering ram.

So, yes, everybody wins, but no one wins as big as MyPoints. They are the ones who generate the eyeballs, premiums, and advertising revenue. It's a perfect plan. With a database that topped four million users earlier this month, and their respective tastes, it's the direct subway line between Wall Street and Madison Avenue.

While the company successfully raised $40 million in its August debut, and its stock tripled over its first month of trading, it has now given most of those gains back. Trading recently at $12, and backing out the IPO proceeds and petty debt, MyPoints had a paltry enterprise value tag of just $250 million.

Amazing. You build a better mousetrap. You bag millions of registered users. You establish sponsorship deals with online heavyweights like eBay (Nasdaq: EBAY), eToys (Nasdaq: ETYS), and, yes, even The Motley Fool. You have sales that are projected to triple next year and double again the year after that. You have it all -- except the investment community's blessing.

Then again, that's fine. It wouldn't be a treat if optimism was getting ready to peter out. So, in your bag goes this sour jawbreaker. MyPoints is a stock that might appear bitter on the outside, given its recent thrashing, but gets sweeter and sweeter as you close in on the center.

Forrester Research projects that online advertising will grow tenfold over the next five years -- as it goes from 1.3% to 8.1% of the total spent on traditional advertising. Think about it. By the year 2004, companies will be spending an estimated $22.2 billion in online marketing. MyPoints is going to get a juicy piece of that pie. The company has already landed many lucrative offline accounts like Macy's and Sprint (NYSE: FON). The company's plan has been validated by the leaders of both the online and offline world.

Success has also given the company its stamp of approval. This month the company had to raise its advertising rates by 16-40%. I think MyPoints, and its growing list of clients, is realizing what I knew all along. The MyPoints loyalty program might be the one effective way to stimulate websurfer interest. It also licenses the process so stand-alone companies can offer their own in-house programs. Leveraging its prowess, but not its balance sheet, is what great companies do. It's what MyPoints is doing.

While the company is probably at least two years away from profitability, it is selling at an enterprise value that is just four times the $66.6 million in 2001 sales projected by Wit Capital. That is a bargain relative to other Internet marketing players like DoubleClick (Nasdaq: DCLK) or Abacus Direct (Nasdaq: ABDR) with double-digit ratios. And, to be honest, those mousetraps don't exactly entice me in the first place.

According to Media Metrix, the company has 2 1/2 times the market share of its largest competitor. Naturally, marketing money will continue to flow to those with marketing muscle. That is something that intrigues me and snaps me out of my painted-on smirk. That is my point. That is MyPoint. That, Fools, is a treat.

Next Trick -- Net2Phone

MyPoints.com Company Information:
Trades on Nasdaq under symbol MYPT

  • MyPoints.com's website: www.mypoints.com
  • Current Quote
  • MyPoints.com's Chart
    Other Related Links:
  • MyPoints.com Message Board
  • MyPoints.com Daily Trouble -- 10/19/99

    * A Trick or Treat represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts.

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