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All The Stock That's Fit To Sell?


BusinessWeek Investor -- The Barker Portfolio

All the Stock That's Fit to Sell?

Are you a "quality" individual? Educated, yet still curious about the world? Do you travel? Golf? Are you a connoisseur of culture? Of fine wine? Most of all, are you affluent? Then Times Company Digital wants you.

TCD, as it hopes to be known on the New York Stock Exchange, is the group of Web sites aimed by the New York Times Co. at the 40 million Americans it estimates are in this "quality audience." These are people with "an affinity for other like-minded individuals, based not on geography but on shared values and interests."

I'm not making this up. It's all in documents filed this year by Times Co. And in that context, it's easy to feel a) anxious over getting in with the "quality" crowd, and b) eager to invest in Times Company Digital. Besides nytimes.com, the TCD sites include NYToday.com and boston.com, focusing on their cities, GolfDigest.com, WineToday.com, and Abuzz, a new "knowledge network" site linking people with questions to others with answers. If approved in April by shareholders, New York Times Co. plans to sell stock reflecting TCD. I say "reflecting" because these shares wouldn't be actual equity in TCD, but what Wall Street calls tracking stock, a gimmick some companies use to spotlight discrete units. Walt Disney does just this for its Web sites with GO.com. Ditto Ziff-Davis via ZDNet Group.

To me, though, what the TCD deal spotlights is the sheer lunacy of current Internet valuations. By this I don't mean to rant against every New Economy stock vs. the virtues of a toothpaste seller like Procter & Gamble. But if you look closely at TCD's operations, compare them with rivals', and apply some common sense, it's plain that Web stock valuations can be wildly inconsistent, even with each other.

So far, TCD's financial disclosure ends with results through Sept. 30. Since New York Times Chairman Arthur Sulzberger Jr. isn't talking ahead of the deal, I had to hazard some estimates, such as TCD's full 1999 revenue. I put it at $25 million. The company also is weeks away from pricing TCD stock, so I guessed a public sale might value TCD at $1.3 billion, or about $14 a share. That's double the value indicated in January when TCD granted employees some stock options. My guess of TCD's market value probably will prove wrong. But once you get a load of the wacky world TCD is entering, you'll see why it hardly matters.

Here's what I mean: Look in the table, where I've put TCD among four rivals. See a pattern? I didn't think so. GO.com, with such sites as ABC.com, ESPN.com, and Disney.com, is luring the most monthly visitors and is No. 2 in revenues. Yet its market value is second-lowest. You might say that's because its revenue per visitor is subpar. But what about NBC Internet? Its market value is nearly triple GO.com's, even though its revenue per visitor is barely more than half GO.com's. Doubtless some analyst somewhere might rationalize this. But I think you can just chalk it up to the Street's adoration of Jack Welch, CEO of NBC parent General Electric, and its recent annoyance with Disney CEO Michael Eisner.

Next, look at TCD. In this group, its sites see the fewest visitors. Yet its focus on the "quality" crowd makes it No. 2 in revenue per visitor, behind just ZDNet. If investors award TCD a market multiple on revenue per visitor akin to ZDNet's, it easily could be valued at more than $1.7 billion. That would be nearly one-fourth the value investors give all of New York Times, which last year netted a healthy $310 million on revenue of $3.1 billion. Profitless TCD probably chipped in less than 1% of that revenue.

Now, does this make sense? Yes, if you're Sulzberger, Welch, Eisner, or anyone else who sells Net stock in a time like this, when the rationale for valuing it is as thin as lunar air. Selling these, I'd say, is a quality move. Buying isn't.Questions? Comments? Send an e-mail tobarkerportfolio@businessweek.com or fax (321) 728-1711By Robert BarkerReturn to top


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