2HRS2GO: Drkoop.com too reliant on a one-man brand
Stock investing -- that's investing, not the speculation or gambling practiced by day traders and other momentum players -- has always been about people.
When you buy into a company, you're not just buying into a business plan or sales model. You're putting your money into its managers and employees. But is it wise to invest strictly on the basis of a single personality?
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| Drkoop.com: Worthy investment? |
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That's what you did today if you bought shares of Drkoop.com (Nasdaq: KOOP), because the business itself is less than impressive. Stripped of the C. Everett Koop association, it's just another health care website (albeit a sharp-looking one). The business has been generating revenue for less than nine months and the resulting financials are laughable even by Web investing standards: $404,000 in the first three months of calendar 1999.
Given such a dearth of self-generated money, Drkoop.com -- looking to reel in as much cash as possible from the public market -- sold 9.375 million shares, thus eliminating the demand bottleneck that typically drives up Internet stock prices.
Today's market, to its credit, seems to recognize the limitations of Drkoop.com. Compared to earlier Internet IPOs, the gains have been mild -- in mid-afternoon trading, the stock is up slightly more than 87 percent from the initial offering price of $9.
Not that Dr. Koop himself would probably complain -- with shares trading at 16 7/8 his total options are worth almost $11.2 million, an almost Michael Jordanesque price for what essentially amounts to an endorsement contract. Considering Koop is 82 years old, I hope he can cash in those options soon; on the other hand, he'll probably be around for awhile, since a medical-related company has more incentive than most firms to see that their chairman/chief spokesman/mascot stays alive.
Unfortunately, that also points up the real problem with this stock. Never mind that drkoop.com is far too young to be going public. Forget about the fact that it operates in a field that's becoming more competitive every day.
The real problem is that drkoop.com is literally a one-man show. Without Koop's grandfatherly demeanor, this company would still be scratching along, trying to peddle health care information software under the brand of Personal Medical Records, Inc.
Dr. Koop has impressive medical credentials (not to mention personal ones -- not many people came out of the Reagan administration as untarnished as Koop). He obviously has some brand name cachet to attract people, though not too much, judging by statistics so far; 6 million unique users over 11 months is miniscule by Web standards. Maybe a Dr. Jocelyn Elders website would draw more visitors.
A recognizable face just isn't enough to create a viable information-based business, not on the Web, where it's too easy to get information elsewhere and too easy to buy elsewhere.
Does Drkoop.com have any edge in content that will draw advertisers? Is the e-commerce potential -- mostly through sales of drugs and other health care items -- something that won't be blunted by competitors like Drugstore.com? Everyone has their own opinions on which sites are better, but by and large, Drkoop.com doesn't appear to be demonstrably superior to anything else -- just newer.
Other issues:
After all, Disney already owns almost half of Infoseek. Even if it didn't, Disney has never needed Infoseek the way contentless At Home needs Excite. And as always, just because one sucker overpays doesn't mean you have to do the same.
You could use USA Networks-Lycos as a point of reference as some have, but that fiasco said more about the Lycos shareholders than about Internet valuations in general. And if you look at the final outcome, Lycos and USA are basically getting all the promotion out of each other anyway, but at a much cheaper price than a merger would have been.
Either way, it doesn't bode well for Infoseek shareholders hoping to get top dollar out of Mickey Mouse.
This afternoon, the overall technology market continued its gentle slide. With two hours left in regular trading, the Nasdaq Composite Index was down 9.21 to 2515, the S&P 500 had fallen 7.94 to 1326.58, and the Dow Jones Industrial Average had retreated 101.95 to 10807.43. 22GO>