BUSINESSWEEK ONLINE : NOVEMBER 20, 2000 ISSUE
BUSINESS WEEK E.BIZ -- NET WORTH

Stock Info for the Masses
Multex.com sells research to the little guy--and is making money

Photo by Shonna Valeska
Karaev has stayed ahead of investors' changing demands
When MultexInvestor.com debuted in November, 1998, it represented everything the Internet revolution was supposed to be about: Giving the little guy access to information once hoarded by the big shots.

Suddenly, small investors could log on and get thousands of stock research reports from big-name brokerage houses like Merrill Lynch ( MER), J.P. Morgan ( JPM), and Bear Stearns ( BSC). Until then, these data-rich reports had been sealed behind big oaken doors, spirited only to professional money managers and the wealthiest individual investors.

Soon, more than 100,000 people a month were registering to use MultexInvestor.com, one of a family of Web sites operated by New York-based Multex.com ( MLTX). And in October, Multex.com unveiled what many Net companies may never see: a profit. It earned $210,000 on sales of $22.8 million in its third quarter. ''This proves our business model works,'' beams Isaak Karaev, chairman and founder of Multex.com.

Clearly, not all dot-coms are dot-bombs. What Multex.com's story shows is that survival on the Web depends on the right formula: a unique product, a diverse stream of customers, and a low-cost way of reaching them. Multex.com has it all. It gets its research from brokerage firms for free in exchange for information about customers and a cut of sales. Multex.com then sells research to small investors on a per report basis and to professional money managers through yearly subscriptions. It also designs Web sites for brokerage houses. Sponsorships and banner advertising--the major revenue sources for many Web companies--make up just 19% of Multex.com's sales. ''Our success lies in being able to package research in different ways,'' Karaev says.

Still, a small profit doesn't guarantee that Multex.com will grow to be a big company. It is in a constant fight with more established rivals like First Call Corp. and Zacks Investment Research Inc. Then there's the possibility that brokerage firms will bring their research distribution in-house, eliminating the need for third-party players. And if the stock market continues to wobble or falls further, consumers may lose interest in research entirely. Despite the recent quarter's profit, Multex.com will finish this year in the red. As Wall Street continues to punish dot-coms, Multex.com's shares have dropped 82% in the last 18 months, from $65 in April, 1999, to $12 today.

So far, Karaev has proved adept at navigating the changing demands of investors. When he founded Multex in April of 1993, Karaev, a computer programmer at Automatic Data Processing Inc.'s financial information division, was looking for a better way to electronically deliver research from brokerage firms to money managers. The leader in the business was First Call, a division of publisher Thomson Corp. But First Call's transmissions were just a few paragraphs, and it operated a closed system that required a dedicated server and special computers at each customer's site.

After Karaev raised $7 million from venture capitalists, he developed software that transmitted research directly to a client's PC. First Call launched a competing product, but Karaev--working with a smaller staff and budget--charged a few hundred dollars a year, while First Call's rates remained in the thousands of dollars. When the Web took off three years later, Karaev revamped his product so money managers could access reports via the Net. He changed the name to Multex.com and he took the company public in March of 1999.

By racing to the Web, Multex.com was able to provide an alternative to First Call that would-be rivals found hard to duplicate. Today Multex provides 2 million reports from 750 brokerages and research houses. And Multex.com has been quick to launch new businesses. As Karaev called on brokers to convince them to use his service, he discovered they needed someone to design and manage their Web sites. So in 1997 he launched MultexEXPRESS, and pulled in such clients like U.S. Bancorp Piper Jaffray Inc. ( USB) MultexEXPRESS accounts for one third of Multex.com's sales.

The final leg of Karaev's business is MultexInvestor, which offers stock research to small investors. The reports sell for between $10 and $150 each. Several firms, like Merrill Lynch and J.P. Morgan, sponsor the site and use it to lure customers. Users are offered such incentives as free access for a month in return for providing their contact information to brokerages that want to pitch their services.

Still, competitors are gaining fast. First Call and Zacks continue to improve their Web services. First Call's parent, Thomson Corp., has been aggressively buying firms that make portfolio management software and stock analysis tools, in a bid to create a one-stop shop for money managers. ''All Multex does is research,'' says Suresh Kavan, chief executive of Thomson's money manager division. ''We serve the portfolio management company from beginning to end.''

But when investors start searching the dustbin for dot-com stocks with real value, Multex.com is likely to rise to the top. Chase H&Q analyst Gregory W. Smith expects Multex.com to earn $26 million next year on revenues of $143 million, up from an estimated loss of $2.1 million on $82 million in sales this year.

Multex.com keeps carving out new markets. In September, seven brokerage houses announced they would partner on TheMarkets.com, a research and trading portal for institutional money managers. The firms chose Multex.com to build and run the site. ''They have the best technology,'' says Laurence Tosi, a Merrill Lynch & Co. executive. This coup is more evidence that the investors who knocked the stuffing out of Multex.com's shares should do a bit more research on this dot-com winner.

By CHRISTOPHER PALMERI

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