Report: Dot-com dogs may be bargains

The game isn't over for downtrodden dot-coms, according to a report from Webmergers.com, which suggests some of the most cash-strapped content and e-commerce companies may be tantalizing takeover targets.

The report suggests there may be some hope for companies such as Drkoop.com (Nasdaq: KOOP), CDNow (Nasdaq: CDNW) and a host of other companies left for dead.

Dot-com dogs: Buy em up?

The report from Webmergers.com, a site for identifying merger and acquisition trends and valuing Web companies, used 1999 monthly unique visitors, or MUV, acquisition multiples to calculate the current expected share price for the 40 most undervalued content and e-commerce companies.

"There is hope for CDNow and drkoop.com," said Tim Miller, president of Webmergers.com. CDNow's 6 million MUVs are valued at just $19 each by the marketplace. "In Internet dollars, it usually costs at least $100 to get new visitors to a site," Miller said. "Why wouldn't Ticketmaster Online-CitySearch (Nasdaq: TMCS), with its customers valued at $286 in the marketplace, spend about $150 million to buy CDNow, and buy all these customers -- its sounds like a no-brainer."

Miller's most undervalued content companies include Salon.com (Nasdaq: SALN), Drkoop.com, Theglobe.com (Nasdaq: TGLO), About.com (Nasdaq: BOUT), Women.com (Nasdaq: WOMN), iVillage (Nasdaq: IVIL), Garden.com (Nasdaq: GDEN) and Ask Jeeves (Nasdaq: ASKJ).

On the commerce side, Miller lists CDNow, ShopNow.com (Nasdaq: SPNW), Barnesandnoble.com (Nasdaq: BNBN), Fashionmall.com (Nasdaq: FASH), Beyond.com (Nasdaq: BYND), Headhunter.net (Nasdaq: HHNT), Egghead.com (Nasdaq: EGGS) and PlanetRx.com (Nasdaq: PLRX), Autobytel.com (Nasdaq: ABTL) and Fogdog.com (Nasdaq: FOGD) as values.

The miraculous recovery of Drkoop.com, which was up more 110 percent at one point Wednesday, lends credence to valuing a company based on its takeover potential. By renegotiating its agreements with AOL (NYSE: AOL) and Go (NYSE: GO), all Drkoop.com did was make itself more attractive to buyers.

"The agreement removed an albatross from the companies neck... potential acquirers did not want to be obligated for the significant future cash payments for portal deals that simply weren't delivering the intended results," said Caren Taylor in a report for E*Offering.

Of course, there's always the chance that Drkoop.com, and other top-ranking companies in the study, such as Theglobe.com and CDNow, may not be bought.

"There are very few companies that are looking to buy eyeballs, most want to buy businesses" said Derek Brown, an analyst for WR Hambrecht & Co.

Furthermore, "not all eyeballs are created equal" said Brown, who emphasized the importance of judging how a company monetizes its traffic.

Brown, who covers About.com, listed as the fourth most undervalued content company by Webmergers.com's study, said MUVs are useful to point out some major imbalances. He prefers to use enterprise value, a calculation of market cap minus cash, plus debt. Based on the close of trading Tuesday, About.com was trading at 6.1 times 2000 multiples, a big difference compared to similar companies which are trading at 25 to 30 times estimates, Brown said.

While MUV multiples only establish valuable acquisition targets for companies that don't care about buying revenue or advertising base, Miller said they can also be a good metric for investors to judge early stage companies, as an illustration of the company's ability to generate interest.

Although the MUV metric is not as relevant for a company like Theglobe.com, there's still something amiss with the fact that a Theglobe.com customer is worth $14 and an AOL customer is worth over $3,000, Miller said.

Miller said the MUV metric should only be used as a guide. "This is not a story about stock picking," Miller said. He said the quality of the visitors, the demographic of the visitors, how long they stay, and how the site can monetize them is also important.

"The big kahuna will always be revenue, and, god forbid, profit," he said.
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