2HRS2GO: Tickets.com tough sell for long-term investors
At one point shortly after its debut, Tickets.com (Nasdaq: TIXX) was up 156 percent, but it didn't last. Hype can only carry a stock so far.
Given that the IPO pricing of $12.50 per share represents a $3.50 jump above the proposed offering range of 7 to 9, you would think lead underwriter Morgan Stanley Dean Witter saw plenty of demand for the stock. But maybe people are starting to realize that Tickets.com is merely the example of a would-be Web IPO that shouldn't be.
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This IPO prospectus offers plenty of starting points for skepticism. Let's begin with the fact that this isn't a Web company yet. Almost 92 percent of revenue for this "dot-com" comes from non-Internet sales. "Although historically our Internet-based revenues have not been significant, we believe substantial opportunities exist..."
Yeah, yeah. So does everyone else.
Investors might be aroused by Tickets.com's agreements with Excite@Home and Cox Interactive Media. Getting onto the largest broadband system is a nice coup, to be sure, but it's not like the company has distribution on America Online or Yahoo! -- now that would be something.
In any case, getting a large deal only makes up for the loss of clients. Tickets.com has built itself on acquisitions, but not all the customers came along with the those purchases.
Tickets.com last year lost three clients from one of its acquisitions, Bay Area Seating Service. The trio took about $5.8 million a year with them, according to the IPO filing. And the largest customer of Bay Area won't be using Tickets.com as of the end of this year; that translates into another $3.5 million annual hit.
Always be wary of money-losing real world companies trying to convince you they'll suddenly be an online success. Tickets.com finished every year of its existence in the red.
First-mover advantages might help. Unfortunately, at least one competitor, Ticketmaster Online-CitySearch (Nasdaq: TMCS), has a head start and a more recognized brand name. Ticketmaster Online posted online ticket sales of $43.8 million in the first nine months of the year, including $16.6 million in the third quarter. By contrast, Tickets.com's third quarter online sales of roughly $1.15 million (8.3 percent of $13.8 million) seems paltry.
By the way, Ticketmaster Online is suing Tickets.com. Whether the suit has merit or not -- I'm inclined to think not, since it's more than a little unsettling that Tickets.com admits that if it loses, it could be "severely" harmed. Why is Tickets.com relying so heavily on links to a competitor? Seems like an unusual way to do business.
There's also one big question: can tickets and related services by themselves support a viable online business? No one has successfully proven it yet, not even market leader Ticketmaster; don't forget, not only does TMCS still lose money, but it's not a pure ticketing business -- tickets are merely part of the local guide company. Not even Ticketmaster Online parent USA Networks believes it's a great business by itself; that's why Barry Diller tried to merge TMCS with Lycos.
Tickets aren't like books. Few publishers sell their wares directly, and in any case, if you're looking for reading material, it's easier to look at an catalog featuring a wide variety of products. But ticket buying is a different experience; I suspect more often than not, the majority of event ticket buyers know what they want before they buy. If they don't, they figure it out when they get in town and go to places like the TKTS booth in New York City's Times Square, or a similar kiosk here in San Francisco near the theater district.
In other words, is there that much demand for online aggregators of tickets? If I want a ticket to an NFL game, I go to the NFL team's website directly and look for ticket information.
The momentum traders have had their fun with Tickets.com, which explains why the stock price plunged more than 10 points in its first hour of public trading existence. Now it's time to attract long-term (or at least somewhat long-term) buyers; but Tickets.com offers them too many reasons for wariness.
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