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About.com: A Five-Month-Old on a Roller-Coaster Ride It leaped skyward from its March IPO, only to tumble by summer. Now, with takeover talk swirling, it's climbing again Ouch! About.com (BOUT) is the kind of Internet stock that singed investors this summer. Even given the rout in almost all pure-play Net stocks, the slide in About.com (formerly known as MiningCo) was particularly steep. The company, which operates as a network of 650 human-managed guides ranging from arthritis and amateur wrestling to weddings and weight loss, went public on Mar. 24. It surged to a high of 100 on Apr. 1 -- and then stumbled to a low of 19 1/2 by Aug 5. Analysts say investors seemed to have forgotten about the stock, due to the company's name change and a deluge of other Net offerings. Mounting losses probably didn't help matters. Thanks mainly to massive spending on promotion, About.com reported red ink of over $20 million for the second quarter, up from only a $3 million loss the same quarter in 1998. Revenues were $3.7 million, up from $400,000 the prior year. Analysts don't expect the company to start turning a profit until late in 2001. About.com basically functions like a search engine, but instead of random listings, its comprehensive guides offer original content, links to other sites, chat rooms, and more. Each section is monitored by an About.com "guide" who gets 30% of that section's net revenues as compensation.
A NEW NO. 1. But the real wake-up call came from Media Metrix' July traffic rankings, released Aug. 20. About.com jumped from 20 to 17 in the overall rankings, with 8.3 million unique visitors for that month. It toppled ZDNet (ZDZ) from its perch as the No. 1 news, information, and entertainment site. Wit Capital analyst Jordan E. Rohan raised his revenue estimates and lifted his price target to $65 on Aug. 23 as a result of the traffic report and his belief that the Netscape and Alta Vista deals would build even more traffic. "Its reach and ability to generate advertising revenues are increasing markedly," says Rohan, adding that he expects About.com to be a top 10 site by yearend. The result: About.com shares closed on Aug. 25 at 39 5/8 -- a nearly 50% run up in only three trading days. "They clearly have a tremendous amount of wind in their sales at this point," says Derek Brown of Volpe Brown Whelan & Co. Despite the recent jump, analysts say About.com still looks cheap relative to other Internet portals. While it sounds ridiculous to term a money-losing company a "value play," that's exactly what About.com has become to Internet investors, say analysts. Brown judges a stock's value by looking at the company's enterprise value (market capitalization, minus cash, plus debt). About.com is trading at an enterprise value of 7.1 times his calendar 2000 revenue estimate, while Lycos (LCOS) is at 11.9 times, CNET (CNET) is trading at 17.2 times, and Yahoo! (YHOO) is at 41.1 times.
About.com Chairman and CEO Scott Kurnit says he is continually in discussions with other companies, but he believes About.com has what it takes to "go the distance" on its own. Because it operates highly targeted sites, it can charge higher ad rates than other portals. And the company is just starting to sell ads on its niche sites, he says. In March, it had only seven niche buys, but in June it had 77. Plus, he says, with 650 "expert" guides already recruited and trained, About.com has barriers to entry other portals lack. "It's very difficult to commoditize talent," he says. In context, the company's second-quarter loss, which was narrower than analysts expected, wasn't so bad. With a name change in mid-quarter, the company had to spend to get the new monike before the public. Now, Kurnit says About.com will spend less on advertising in the third and fourth quarters this year. He says the business model is so flexible (all the guides are independent contractors and the company has only 220 employees, for example) that it could adjust its model to reach profitability sooner if that's what the market demands. TOO MANY HANDS? What should About.com investors worry about? Plenty. Although Rohan thinks the site's ties to real people increases user loyalty and thus encourages more frequent visits, Harmon thinks it limits how fast the company can grow. "Internet models usually want to be more hands-off," he says. Investors should also keep in mind that the six-month lock on insider sales following the IPO will be expiring in the next month, which can push a glut of shares onto the market. This is the kind of thing shorts look for. One message board posting on Aug. 25 read, "I'm rooting for the small, naive investors to continue bidding up the stock this week so I can make even more money shorting again!!!" About.com is doing a good job reconvincing investors it has what it takes to become a top site. But as its short history shows, for the stock to outperform, investors have to be in the mood to count revenue growth and traffic more than current profits. Lucky for About.com investors, that optimistic spirit seems to be returning to Internet investing -- for now. Amey Stone is an associate editor at Business Week Online _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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 Amey Stone covers the markets and investing for Business Week Online WEB POINTERS To visit some of the sites mentioned in the story, click here: About.com ZDNet Lycos CNET Yahoo! | ||||||||||||
