The Motley Fool won't rush into an IPO
Is the Motley Fool living up to its name by not going public in an inviting IPO market, or is it wise for avoiding the microscopic scrutiny of Wall Street?
The Motley Fool, which provides business and investment information and analysis, appears to be a little of both. While its nearest competitors, TheStreet.com and CBS MarketWatch, respectively quadrupled and tripled in their first days of trading, the Fool said it plans to stay the course as a privately held company while trying to further distinguish itself in the increasingly crowded field.
But some analysts question why this well-aged service is not striking while the Internet IPO iron is hot.
Although Net companies that recently have launched IPOs receive a great deal of attention because of their soaring stock prices, analysts say there is much to cherish as a private company. For example, it doesn't face the pressure of having to disclose quarterly earnings and other details.
"Our time frame as a business is 60 years, not 60 days," Motley Fool chief operating officer Erik Rydholm said. "We consider an IPO to be a financing event and not an exit strategy, and we don't want financing to be confused with our business goals."
Rydholm, who along with managing partners David and Tom Gardner was with the Fool in 1993 when it was a 16-page newsletter sent to friends and family, said the company's business is to study the strengths and weaknesses of public companies. Taking what it has learned, the Fool is following its own advice, minding long-term goals such as buy-and-hold and not trying to time the market, he added.
"We want to make sure we have all the pieces in place to build a company that will thrive in the public market," Rydholm said.
The Fool, which debuted on America Online in August 1994 and ventured onto the Web in April 1997, appears to be a throwback in an environment where newly birthed Internet companies are rushing to the market.
"I don't think there has ever been a better time to consider an IPO given the performance of CBS MarketWatch and TheStreet.com," said Ken Fleming, an analyst with Renaissance Capital IPO Fund.
On the other hand, some analysts say the business information and analysis marketplace might be getting a little too crowded.
"Certainly [the Fool] has garnered much attention in the marketplace," said David Menlow, president of the IPO Financial Network. "But the market is not very deep for a continued onslaught of market timers."
The Fool's advantage in staying private
Nonetheless, most analysts agree that the Fool is strong enough to stand on its own without necessarily needing the infusion of cash that an IPO brings.
"Assuming [the Fool] is profitable, and my understanding is that it is, going public does not have to be automatic," said David Simons, managing director of Digital Video Investments.
Another advantage to remaining private is that a company doesn't have to adopt growth strategies based on pressure from Wall Street. Indeed, the Fool apparently did not spend any money on advertising until October 1998.
"We hadn't spent a nickel until October on brand marketing over the history of the company," Rydholm said. "So much of our branding has been through word of mouth--a testament to how much you can grow without spending money."
As a private company, the Fool doesn't have to reveal its financial results or its growth in traffic. But Rydholm noted that the company in March had 1.5 million unique users, up from 1 million in January.
The Fool continues to add to its offerings to better compete in the financial news and analysis space. On Wednesday it announced that the Reuters news service will begin to supply financial news to the Motley Fool site.
"While news is not our central business, we want to make sure we put the best tools in the hands of our customers," Rydholm said. "We would even consider looking at adding folks that are sometimes considered our competitors."
Rydholm said he doesn't consider TheStreet.com and CBS MarketWatch to be the Fool's competitors. Rather, the services are complementary, he said.
"Ultimately we are different from those types of sites because we are not using the medium to get you more news faster," Rydholm said. "We offer more perspective."
Does the Fool keep a faithful flock?
Critics have said the Fool draws more beginner investors, who are more vulnerable to potential manipulation in the Fool's community message boards.
"That is always a risk, but we have 20 people full time who oversee the boards," Rydholm said. "We certainly don't cater to day traders--never have and never will."
The same critics note that beginner investors are likely to move on to sites that offer more complex information and services once they have outgrown the Fool.
"It's true that people say we are sort of a 'stock market on training wheels,' if you will," Rydholm said. "But those are the same accusations that AOL faced all these years, and we are still waiting to see people move away from AOL.
"We see the same thing at our site. People don't tend to leave; they tend to use us along with other sites, because what we offer is something fundamentally different," he added.
The Fool also has a syndicated column that appears weekly in 150 newspapers, a radio program in 55 markets, and recently began publishing financial books. The company has 150 employees, including writers, editors, and technicians for its Web store, FoolMart.
The Fool has distribution deals with Yahoo and AOL, which is the only outside investor in the company, according to Rydholm.
"If [the Fool] is able to take its alliances and pivot them into marketing arrangements, they will enhance their business," said IPO Financial Network's Menlow. "They may miss out on the obvious benefits of going public, but maybe they can accomplish much of what they want with their current model."