Internet and Related Companies

Brokerage	Recommendation	Sentiment
Prudential
CSFB

Akamai (AKAM) Cambridge, MA CEO George Conrads www.akamai.com

· Hawaiian for intelligent, clean, and cool

· Focus on speeding up web pages, video, and transfer through caching – Content Delivery Networks (CDN’s)

• Helps content providers save costs by not going across the Internet’s backbone

· Routes traffic around internet bottlenecks

· Has 8,000 servers in 55 countries connected to 225 different telecom networks

· Bought Intervu – streaming video

· Akamai and Digital Island have both filed lawsuits against each other on patent infringements. The patents in dispute were awarded to Akamai and MIT. Akamai has exclusive rights to MIT’s technology. Digital Islands technology “Footprints” is infringing on Akamai’s patents though ISLD claims these patents are not legitimate

· September 2000 – CSCO filed to sell 250,000 shares of AKAM

· Alliance with Softbank – Akamai Tech Japan KK – AKAM has a 40% stake – To deliver its services in Asian Internet markets

· 8004 servers as of October 2001

· Charges anywhere from .25 cents to 2 cents per megabyte

• Can Cost $264 to stream one hour of CD quality music to 1000 users

· Has $239M in amortization from acquisitions

· Co-founder Daniel Lewin - On board the first plane that crashed into the World Trade Center on September 11^th

· Predicting positive cash flow at the end of 2003

· IBM reselling Akamai services under “On demand” initiative

· Acquiring Speedra Networks for $137.6M – March 2005

Brokerage	Recommendation	Sentiment
JP Morgan
CSFB
Lehman Brothers

Amazon.Com (AMZN) Seattle, WA CEO Jeffery Bezos http://www.amazon.com/

· Started selling on the Internet in July of 1995

Amazon.com Acquisitions and Alliances:

· Acquired Planetall for $90M - access to 1.5 people who organize their addresses and calendars on the internet

· Acquired Junglee for $180M in 1998 – sole owner of search engines that permits on-line comparisons shopping on the net

· Partnership with Drugstore.com, Gear.com, HomeGrocer.com, Pets.com, Ashford.com, eZiba.com

· AOL investing $100M in Amazon

Amazon.com’s Global Reach:

· Launched in France – www.Amazon.fr

· Prices are regulated in France as well as Europe with a maximum discount of 5% on books - TV ads prohibited

· Will be first retailer in France with 24hour customer service

· Already in UK and Germany

· Foreign sales are 23% - wants 50% (cheaper shipping costs in Europe due to it being more densely populated)

· Analysts say by 2003 - 65% of sales will be outside of US

· Moving into Japan by the end of 2000 – the world’s 2^nd largest consumer market

Amazon.com’s Notables and Stats:

· Gross Margin is 21.9%

· Spent $47M on designing their website and technology

· 4Q2001 – Recorded its first profit

· Attributed to the weakening of the Euro and its Euro-denominated debt

· November 2002 – Has $328M in cash and a debt load of $2.3B

· Lost $149M in 2002 – Lost $1.41B in 2000

· 2003 – Expected sales growth of 30%

· 3Q2003 – First off-season net income profit

· Sales growth for 2004 expected to slow to 15%

· 2003 – First full year profit

· 2003 margin of 22%, was 23% in 2002

· International gross margin – 17% in 2003, 20% in 2002

· 1Q2004 – Posted third straight profit

· December 2004 – Amazon’s busiest holiday season on record with its best single day record of 2.8M units ordered or 32 items a second

· Music sales – Sold 1M plus units a week for two consecutive weeks in December

· From 2000 to 2004, Amazon North American sales rose 60%

· 2005:

· Capital expenditures in 2005 expected to be roughly $175M which is more than the last three years combined – 2004 capital expenditures was $89M

· Seeing its slowest organic growth rate in two years with contracting margins in the first half of 2005

· Operating profit margin – 6.0% - 2Q2005

Amazon.com General Info:

· E-Bookstore – electronic versions of books

· Now will be charging publishers to recommend their books through e-mails – as much as $10,000 per title

· Looking at starting a music online distribution system

· Third Party Vendors

· 20% of items ordered through Amazon are sold by 3^rd partners – 2Q2003 – contributed to 14% in 2Q2002

· Commissions usually 10% to 15% with gross margin of 70% - Amazon’s gross margin is 22%

· A9 – New web search engine

· Will operate as a separate company

· Uses Google base but includes links to relevant books on the subject

· “It’s a search engine with memory” – UDI Manber – CEO of A9

· Records searches and sites visited locally on the PC, stores lists and notes on the search results

· Now offering local searches in 10 major markets that include search for restaurants, business, and offers a “block view” of other listings in the given area – launched February 2005

· Entering the jewelry market in 2004 – “The margins in a typical jewelry retailer are so high you can save people a significant amount of money” – Jeff Bezos

· Launched DVD rental by mail in the UK (Similar to Netflicks)– December 2004

· Amazon’s biggest operating expense in 2005 – It’s Fulfillment Costs is number one with Technology and Content Costs being the second

· IBM suing Amazon over 5 IBM patents relating to e-commerce – 2006

· IBM usually just seeks to set-up a licensing agreement

America On-Line Time Warner (TWX) (AOL) Dulles, VA CEO Richard Parson www.aol.com

America On-Line Pre – Time Warner Merger

For Current Info, please see Time Warner in the Media Section of StockFunnel

AOL Background:

· In 1985, Steve Case co-founded quantum computer service, in 1991 changed name to AOL – went public in 1992

· Grew out of a company that originally was setup in mid 80's as an online service for Atari fans

· Merged with Time Warner in 2002 – AOL’s name was dropped in 2003

AOL Acquisitions, Stakes and Alliances:

· Purchased CompuServe thus getting their accounts

· Acquired Nullsoft for $86M – makes WinAmp – Mp3 player

· Acquired ICQ in 1998 – IM software

· In 98’ acquired Netscape for $4.28B in stock

· In 99’ acquired MapQuest for $1.1B

· Has investments in more than 70 companies valued around $2B – also has received around $2B from warrants that it receives from start-ups

· Has or had stakes in: Sandpiper.net (Digital Island now owns), Infospace, Inktomi, Excite, China.com, Net2phone, Palm

· Investing $1.5B in Hughes Electronic (Satellite operations)

· Acquired Quack – allows telephone users to access internet info – uses voice recognition technology from Speech Works International - AOL has a minority stake

· New Alliance in September of 2000 with NTT’s DoCoMo with AOL’s Japan unit (launch in 1996)

· DoCoMo will have a 43.3% stake in AOL’s Japan Unit with about $120M – AOL stake will be reduced to 39.3% for 50% - Mitsui & Co.(trading house) and Nihon Keizai Shimbum (publishing) will have a 17.4% stake

· AOL Japan has about 460,000 subscribers where Fujitsu’s “ Nifty Service” had 2.3M subscribers

· Will combine DoCoMo’s I-mode service with AOL’s content

· Sprint will be using Instant Messenger on their internet cell phones

· iPlanet – E-commerce solution with Sun

· AOL investing $100M in Amazon.com

· Paying CPQ $35 per user sign up fee for icon placement on MSFT’s XP desktop

· Has a majority stake in China Entertainment Television

· Acquiring IPC media for $1.6B – UK’s largest publisher of consumer magazines

Breakdown:

· 100% stake - Moviefone, Map Quest, When.com, Netscape, spinner Networks, Nullsoft, CompuServe

· Minority stakes – Net2phone, Flashpoint, Tivo, Signal Soft, Inktomi, Liberate Technology, eMachines (6%), Palm, Riffage.com, The Knot, Oxygen Media, iVillage, Stamps.com, Farm Club, Gateway Computers, Hughes Electronics, Planet Out, China.com (8%)

· Partnerships – Wal-Mart, SBC, Bell ATL, Real Networks, TV Guide, CD Now, Bolt.com, Bertelsmann, NTT DoCoMo

· AOL International – AOL Japan (50%), AOL Canada (80%), AOL Latin America (50%), AOL Hong Kong, AOL Australia (50%), AOL Europe (100%)

· AOL Europe – AOL Germany (100%), AOL UK (100%), AOL France (41%), AOL Netherlands (100%)

Products:

· AOL - 32M subscribers

· Instant Messenger, Digital City, Netscape Navigator, Nullsoft, Spinner Networks

· Has 15% stake in TiVo – Makes VCR with a hard disk called Direct Video Recorder

· AOLTV (MSFT Ultimate TV – rival) – interactive TV programming and web style features on TV

· Set-top box costs $250 and monthly subscription of $25 for new users and $15 for existing AOL users

· Surfs web, email, Chat, programming guide

· Instant Messenger

· Has 65.5M users – AOL ICQ – 73M users – MSFT messenger – only 18M users

Time Warner Merger:

· In 1998 AOL lobbied Federal Regulators to require cable operators to open their systems to AOL - now has Time Warner

· Merged with Time Warner (TWX) for $156.14B initially, last check was $110B

· Thought they might had to open AOL Instant Messenger to rivals for approval with TWX

· European Commission wanted to block AOL/TWX merger on concerns about EMI music group and TWX music – TWX entered into merger agreements with EMI before AOL/TWX deal – the two would become the world’s biggest music publisher, a $20B music giant, then combined with AOL’s network – afraid it would dominate too much – Wants this to be addresses and/or rectified before proceeding – Seagram’s and Walt Disney brought this to light

· TWX ended up calling off the EMI deal

· European Commission approved merger with Time Warner

· AOL has thought of combining IM and ICQ

· Advertising will account for 2% of their revenues

General:

· AOL was having big problems overseas, especially in Latin America, during 2000/2001

· Advertising and e-commerce revenues were 29% of total revenue

· Starting an online music subscription service

· Ted Turner owned a 3.8% stake of AOL

· AOL Anywhere – initiative to put AOL on every device that can access the Internet

· AOL By Phone – 800# to call and receive e-mail, stock quotes, news, weather, I.M.’s, restaurants – will be free till Jan 2001 then $4.95 a month

· AOL Mobile Communications – e-mail pager, sends and receives email and I.M.

· With Sprint – I.M. on cell phones

· AOL music player – On new version 6.0 - music subscription services

· AOL Quick Cash – will be able to transfer funds via e-mail – in conjunction with Citibank

· Projects growth of 12%-15% in revenues and 30% in cash flow in the first year after the merger with TWX

· Started a $5B stock buyback program

· Revenue breakdown with TWX

· AOL 25.9%, Cable 30.5%, Filmed Entertainment 7.3%, Networks 17.6%, Music 7.1%, publishing 11.5%

· AOL Latin America had 449,000 subscribers as of Dec, 31^st 2000

· November 2001 – 1.15M

· Has 4.6M subscribers in Europe as of March 2001

· Expects full year 2001 EBITDA growth of about 20%

Brokerage	Recommendation	Sentiment
RBC Capital Mkts
CIBC World Mkts
JP Morgan

Ariba (ARBA) Mountain View, CA CEO Keith Krach www.ariba.com

· B2B e-commerce, automated procurement cycle

· Ariba B2B Commerce Platform

· Has 20 of the Fortune 100 as clients

· Nippon Ariba KK – joint venture with Softbank – Procurement software in Japan

· First B2B company to report an operating profit

· Buying Agile Software for $2.4B – makes software that helps changes in products or their characteristics easier to manipulate and display to a supplier “collaborative manufacturing marketplace” – Fell Through

· Acquired Free Markets Inc for $493M – Supply management services – January 2004

· Settled their lawsuit with ePlus by paying them $37M over a patent conflict – February 2005

Brokerage	Recommendation	Sentiment
Smith Barney
Merrill Lynch
JP Morgan

CheckPoint Software (CHKP) Redwood City, CA CEO Gil Shwed www.checkpoint.com

· Secure Internet transactions – has a 52% market share

· For B-B, Internet transactions

· Network security – CheckPoint Firewall

· Traffic control – CheckPoint Floodgate bandwidth control

· IP addresses management/Meta IP address mapping

· Enterprise Spend Management (ESM) – focuses on a company’s spending activities

· MSFT has a 11.3% stake

· Acquiring Zone Labs for $205M - December 2003

· Zone Labs specializes in Internet security

Brokerage

Recommendation

Sentiment

CMGI (CMGI) Andover, MA CEO David Wetherell www.cmgi.com

· Internet incubator

· “Incubating” 70 companies

• Criteria: Marketing/Ad companies, E-Commerce, Content/Community sites, Enabling Technology companies

· Bought Alta Vista from CPQ

· Has a 77% stake in Engage Technologies

· Folding its iCast Entertainment Site

· Selling its 1stup.com free internet access operations

· Taking charges as much as $90M for fiscal 1^st half of 2001 (ending Jan 21, 2001)

· CMGI@Ventures - venture cap operations

· Has 17 majority stakes in companies – wants only 5-10 by fiscal 2001

· Closing its PowWow instant messaging service

· Looking to become profitable in 2003

Brokerage	Recommendation	Sentiment
CSFB
Smith Barney
Goldman Sachs

CNET (CNET) San Francisco, CA CEO Shelby Bonnie www.cnet.com

· Web properties include: cnet, ZDNet, TechRepublic, cnet Radio Direct, Gamespot, Computer Shopper Magazine, cnet Channel, mySimon, News.com, Download.com, cnetNetworks, Builder.com

· Acquired MySimon internet comparison shopper

· Acquired Ziff-Davis INC (ZDNET) for $1.6B

· For 2001 – expected profit of $60M-$80M on revenue of $450M-$480M

Brokerage

Recommendation

Sentiment

Commerce One (CMRC) Pleasanton, CA CEO Mark Hoffman www.commerceone.com

· E-procurement - helps build business portals that connect buyers and suppliers

· In 1999 Boeing, Lockheed martin, Raytheon, and BAE formed a new online exchange powered by Commerce One

· Bought Appnet for $1.17B - e-business professional service

· GM and Ford taking a 14% stake in CMRC through their online parts exchange Covisint

· CMRC will run the Covisint exchange and will receive a 2% equity stake in the company

· Covisint is Ford’s, GM’s, and Chryslers procurement exchange

· Get most of its revenue from selling and servicing its software, in the future they will charge for each transaction on its electronic marketplace

· By end of 2001 – wants these fees to be 15% of revenue

· By 2006 – 40% of revenue

· SAP of Germany has a 20% stake in Commerce One

· September 2002 – Had a 1 for 10 reverse split

Digital Island (ISLD) San Francisco, CA CEO Ruann Ernst www.digisle.net

Acquired by Cable & Wireless

· Internet traffic routing and web caching

· Bought Sandpiper – technology that speeds up web content and media downloads

· Akamai and Digital Island have both filed lawsuits against each other on patent infringements. The patents in dispute were awarded to Akamai and MIT. Akamai has exclusive rights to MIT’s technology. AKAM claims Digital Islands technology “Footprints” is infringing on Akamai’s patents though ISLD claims these patents are not legitimate

· For 2001 expected revenue to be $170M-$175M ending September 2001

· Cable &Wireless acquired Digital Island for $340M

· Now part of Exodus Communication

Brokerage	Recommendation	Sentiment
Bear Stearns
Smith Barney
CIBC World Mkts

EarthLink (ELNK) Atlanta, GA CEO Charles Betty www.earthlink.net

· No.3 Dial-up internet provider in the US

EarthLink Acquisitions and Stakes:

· Merged with MindSpring on Feb. 4^th 2000

· Sprint has a 27% stake in Earth link

• Sprint has now reduced stake to 17% - 2004

· Acquired PeoplePC – sells a basic computer with internet service for $24.95 a month

· SK EarthLink - Joint venture with SK Telecom of South Korea - $440M venture of wireless and data in the US – Will be called SK EarthLink and represents SK’s first venture into the US

EarthLink General Info:

· EarthLink Subscribers:

• Has 4.8M subscribers and 288,000 broadband subscribers
• April 2002 - 4.2M dial up users - 681,000 broadband
• 4Q2002 – 779,000 Broadband subscribers
• 2004 - 5.4M subscribers
• April 2005 –5.4M total subscribers (3.8M dial-up subscribers – 1.5M broadband subscribers) – Churn rate of approximately 4.7%
• EarthLink is expecting to lose 50,000 net subscribers by the end of 2005

· 2002 – Made $180M in pretax profit on dial-up services

· Must pay high fees to cable-TV companies that supply their high speed broadband connections

· Started offering free internet calling among its subscribers using Skype Technology

· Began offering VoIP in 2003

· Will focus on a wireless broadband going forward in 2005

· Telephone Access – Using line-powered voice access (From Covad)

• Using a regular phone to tap into the Internet to make calls
• Will bundle the service with their DSL offerings and will compete with the Bells
• Works in power outages

· Big Blow of June 2005:

• Supreme Court ruled that Cable TV companies do not have to share their high speed cable lines
• EarthLink and other Dial-up ISP’s wanted to use cable to offer broadband

Brokerage	Recommendation	Sentiment
Smith Barney
Lehman Brothers
JP Morgan

eBay (EBAY) San Jose, CA CEO Margaret Whitman www.ebay.com

· World’s largest personal online trading site which was founded in 1995.

eBay Acquisitions and Alliances:

· Acquired Butterfield Auction House in 1999 for $260M – 4^th largest offline auction house in the US

· Acquired iBazar Group for $126M (French trading site)

• Will now be #1 in Europe – Yahoo #1 in Japan

· Acquiring Homes Direct.com – Real estate listings for $6.2M

· Has a 50% stake in Internet Auction for $120M – The largest Korean Online Auction

• Acquired the remaining shares for $382M – November 2003
• Now owns 99.7%

· Had a 33% stake in EachNet – China’s largest auction site

• June 2003 – Acquired all shares outstanding
• Has 2M+ registered users in China in 2003

· Bought PayPal for $1.4B

• 60% of PayPal’s business comes from payments from EBay
• 70% of EBay users use PayPal

· Bank One has a lawsuit against Pay Pal claiming their infringing on two of First USA’s patents

· Acquired Mobile.de – Classified website for vehicles in Germany for $152M – January 2004

· Acquired Baazee.com for $50M– June 2004

• India’s largest online auction site

· Bought a 25% stake in Craig’s List – August 2004

· Acquired Marktplaats.nl – Dutch auction website for $290M – November 2004

· Acquired Rent.com for $415M – Apartment rental site which charges a $375 fee if they successfully rent out the apartment – Had over $40M in revenue in 2004

· Acquiring Gumtree.com of London and Loquo.com of Spain – Classified sites in Europe – June 2005

· Acquiring Shopping.com for $620M, a 20% premium – June 2005

• Shopping.com is an online shopping comparison site and makes money from clients from click-throughs

eBay General Info:

· eBay was launched September of 1995

· More than 4320 categories

· eBay Reseller Market Place – Where wholesalers trade with larger Ebay buyers/sellers

• Private B to B marketplace and open to eBay power sellers who have over $1000 in monthly sales

· Pro Stores Program – Program to help merchants build web store fronts

· Channel Advisor – eBay’s largest liquidation outsourcer

· Kijiji – Classified Ad sites in Canada, China, Japan, France, Germany and Italy , Kijiji means “village” in Swahili – Announced March 2005

· eBay Registered Users:

• 95M – February 2004
• 430,000 full and part time sellers make a living off selling in some part of eBay
• PayPal

· Has 2.1M active users and 71.6M users – March 2005

· CEO of eBay, Meg Whitman:

• She came on board as CEO February 1998 and took over from founder Pierre Omidyar
• “Ten years is the longest any CEO should remain at a company” - Meg Whitman
• Retiring in March 2008 and will be replaced by John Donahoe, EBay’s president of their auction business.

· John Donahoe was Bain & Co.’s world-wide managing director before he became president of EBay’s auction business.

· eBay Notables:

• Listing fee is $.25 to $2.00 with a successful transaction obtaining 1.25%-5% of the price of the sale
• Half.com – Fixed price auction site

· Shut down Half.com in 2004 – Half.com president resigned April 2003

• Since they carry no inventory their gross margins are 82%
• eBay Cash on Hand:

· November 2002 – Has $750M in cash and almost no debt

· January 2003 – Has $1.1B in cash

• Large corporate sellers represented 5% of eBay revenue – 2003

· Big sellers are shunning the liquidators thus collecting five times the amount at auction

• Thought of developing a TV show
• August 2003 – Found to be in violation on a pair of e-commerce patents of Thomas Woolston of MercExchange

· Will pay $29.5M

· In violation – Technology for “Buy it Now” option and by-passing the bidding process to buy the product at a fixed price

• 2Q2005 – Had 400M auction listings

· Analysts estimate the average commission per sales is 7.54% - Was 7.32% in first quarter 2005

• Until 2005, Ebay was the largest site without third party advertisers. That changed when Yahoo began advertising on EBay’s US sites and Google on their international sites.
• 2007 – Auction revenue represents roughly 70% of their total
• Since its IPO, eBay has had 40 consecutive quarters of sequential revenue growth and profit has grown every year. – 2007 figure

· eBay Revenue, Goals, etc. :

• 2001 - eBay was looking for revenue of $665M
• 2002

· Revenue for 2002 - $1.05B and $1.1B with earnings of .70 to .73 cents a share

· Had revenue growth of 62% in 2002 – expecting $3B in revenue by 2005

• 2003 – Earned $441.8M up 77% from 2002’s $249.9M

· Expected earnings to rise 49% and revenue to grow 70% in 2003

· Began increasing the price for sellers in 2003

· Full time and part time sellers represented 95% of the 24B in goods sold on eBay in 2003

• 2004

· Looking for a 40% revenue growth increase by 2004

· PayPal pulled in 23% of eBay revenue in 2004 with 71% of that from eBay auctions

· 60% of eBay’s new registered users were from outside of the US

• 2005

· Has implied that they will have 50% annual growth and $5B in revenue by 2005

· Looking for $4.2B in revenue with eps of $1.42

· Seeing slowing growth in the US and Germany

· 1Q2005 – First quarter in company history they saw a decrease in traffic (Are they at a maturation point?)

· Overseas revenue increased 51% in 2004

· Seeing more competition from Amazon in early 2005

· Faced much criticism on poor customer service in the late 2004 and early 2005 quarters with people defecting and starting their own websites due to eBay’s price increases and poor customer service

· US represented 54% of total revenue – 2Q2005

• Longstanding revenue forecast of $3B by 2005

· Needs compound annual growth rate of 50% to achieve this

• US Bankcorp Piper Jaffrey - Predicts eBay revenue to be $9.9B by 2010 (Morgan Stanley predicts $11.4B in that same time period)

· With those numbers, eBay needs 494M registered users by 2010 assuming users spend an average of $513 a year shopping on eBay – Will also need 38% of the US adult population to be active EBay traders

· eBay API – software configuration and programs that link and allow eBay to run on other sites

· EBay leading indicators:

• Gross merchandise sales – measure of the total dollar value of merchandise sold on Ebay
• Conversion rates – percentage of actual sales verse posting on the auction site.
• Listing items for sale.
• Always seen a seasonal slowdown starting in the summer months

· On entering new markets – Achieves to make inefficient markets efficient

• EBay has had little success in markets where the platform is already efficient – an example, Real Estate (MLS) and automobile

· eBay Overseas Operations:

• Shuttering its Japanese Internet Auction site – Claiming Japanese don’t value used or old items as much as Americans
• Going into China

· Paying $30M for a 1/3 stake in EachNet and will use EachNet’s name for their own auction operations – China’s leading Internet Auction Site – March 2002

· Ebay increased their stake to 67% in EachNet – July 2003

· Launching PayPal in China by the end of 2005

• 40% of eBay’s total revenue derived from International operations – June 2004
• 2004 – Investing heavily in overseas market especially Hong Kong and China
• Korea – Majority stake in Internet Auction Co.
• Western Europe – iBazar
• Expecting Chinese auctions to surpass American auctions in 2009

· “eBay represents the best business model within the Internet sector” – Anthony Noto, Goldman Sachs – July 2005

· 2007:

• Took a $14 billion write-down with its purchase of Skype.

Excite (XCIT) (ATHM)

· Acquired by At Home

Excite At Home (ATHM) Redwood City, CA CEO George Bell www.home.net

· Formed May of 1999 with the At Home acquiring Excite for $6.7B

· AT&T is the largest shareholder

· Comcast, Cox, Cablevision – cable networks

· Supplies high speed Internet access via cable modems

· Working with Comtel (UK) for their cable for high Internet

· Bought pogo.com for $125M – online games

· Now cancelled acquisition

· Had net loss of $1.3B for 1^st 6 months of 2000

· Not expected to turn a profit till September 2001

· Goal of 3M subscribers by end of 2000 (As of January 2001, has 2.95M)

· CEO George Bell resigned Sept 20^th, 2000 after being in the post since only May of 2000

· Replaced by Mark McEachen

· Replaced by Patti S. Hart

· Company claims that they may be able to survive as going concern and a possibility of bankruptcy protection

· Has 1.5M subscribers

· Dropping demand in its online advertising services

· In Chapter 11

Geocities (GCTY) (YHOO)

· Bought by Yahoo

· Online Community

InfoSeek (SEEK)

· Search engine

· Acquired by Disney

Inktomi (INKT) Foster City, CA CEO David Peterschmidt www.inktomi.com

Acquired by Yahoo (YHOO)

· Scalable software for large scale networks – largest portion of its revenue

· Allows web pages to be cached in several locations and constantly checks for updates, also locates closest cached site – basically mirrors content

· Has large market share – some say 90%

· Search engines only 30% of revenues

· Acquired Fast Forward Networks for $1.29B – makes software that delivers streaming broadcasts over the internet

· Acquired a few assets of Adero Inc. for $23.5M – provides global content distribution and designs for e-business

Interactive Corp

See Consumer/Conglomerate page

Brokerage

Recommendation

Sentiment

Internet Capital Group Inc. (ICGE) Wayne, PA CEO Walter Buckley III www.internetcapital.com

· Parent company is Safeguard Scientific (SFE)

· Internet incubator focusing on B-B companies

· 80 partnerships since November 2000

· Stakes in 74 private companies and 6 public companies

· Has deployed over $1B in capital

· IBM selling 750,000 shares of ICGE

· Acquired a 19% stake in Agribuys – online marketplace for food and floral

· Between Feb. and July of 2000, GE sold over $2M shares of ICGE

Juno Online Services (JWEB) New York, NY CEO Charles Ardai www.juno.com

Now called United Online (UNTD)

· Free E-Mail service, Dial up services

· Has 3M free ISP customers and 842,000 paying customers – claims to be the largest free ISP

· Wants to become the leader in online virtual supercomputing with its Juno Virtual Supercomputer Project.

· Participants will need to keep their computer on at all times thus others can use their computers resources when they are not personally using them

· Called “distributed computing”

· For free access subscribers may have to take part in this

· Merged with NetZero in a $70.7M deal

· This will unite the 4^th and 5^th largest ISP

· Will be called United Online with 7M subscribers but only 1M paying subscribers

NetZero (NZRO) Westlake Village, CA CEO Mark Goldston www.netzero.com

Now called United Online (UNTD)

· Qualcomm had a 10% stake

· Free Internet Access – has 5M registered users

· Merged with Juno in a $70.7M deal

· Now called United Online

· See United below

Netscape (NSCP)

· Bought by AOL

Brokerage	Recommendation	Sentiment
Raymond James

Real Networks (RNWK) Seattle, WA CEO Rob Glaser http://www.real.com/

· Real Audio/Real Player – 200M copies have been downloaded

Real Network Acquisitions, Stakes and Alliances:

· AOL now using Real through AOL

· Pact with Nokia for REAL to play music and video on cell phones

· With Sony – making a new music format similar to MP3’s which are smaller in size and higher quality using ATRAC3 compression

· Acquired Aegisoft for $10M – makes secure digital media software

· AcquiredListen.Com for $36M - Listen.Com owns Rhapsody Internet Music Service

· Real Networks is largest shareholder in MusicNet – With EMI Group, AOLTWX, and Bertelsmann

· Acquired GameHouse for $35.6M in 2004

· Partnership with Starz Encore (Liberty Media) for downloading of movies – Starz On Demand

· Acquiring Mr. Goodliving for $15M – Makes games for cellphones – June 2005

· Acquired Zylom Meida Group for $21M – Dutch Video Game maker – February 2006

· Zylon titles include Bejeweled and other easy-to-play puzzle and card games

Real Network General Info:

· Most of its revenue came from AD space in the 1990’s

· Real Player has 170M registered users

· CEO Rob Glaser owns 31% of the company

· “Gold Pass” $9.95 a month – has 150,000 subscribers – special multimedia package

· Has partnership with NBA for broadcasting their NBA.com TV

· Real One SuperPass:

· Focusing on subscription video programming with Real One SuperPass

· End of 2002 - 900,000 subscribers at $10 a month

· Rhapsody On-Line Jukebox – 900,000+ songs for $9.95 a month or can purchase a song for 79 cents

· Rhapsody pays royalties to the artist

· Has margins around 45%

· Subscribers:

· End of 2004 – 700,000

· Has a 40% market share for music

· Rhapsody To Go – Service for $14.99 a month that offers unlimited access to music on its network from portable music players – Introduced in 2005

· Hoping for a $1B settlement with Microsoft (MSFT and Real may settle for $500M or will play it out till 2007) due to Microsoft bundling Media Player with Windows

· Microsoft recently settled with Novell, Sun and the EU ruled that Microsoft must sell Windows without media player installed

· Settlement would equal to $2 a share for Real

· “We couldn’t hoped for a more favorable outcome in Europe”

· Real verse Apple iPod

· With Apple you own the song and with Real you “rent” the song

· With 10,000 legal songs on an iPod will cost $10,000 while with Real, it would cost $14.95 a month

· Real Network’s “Holy Grail”

· Real sees major growth and opportunity with WiMax technology and phones that will be able to play their music

· Competes with Napster (270,000 subscribers), Yahoo MusicMatch , and AOL Musicnet – February 2005

Brokerage

Recommendation

Sentiment

Safeguard Scientific (SFE) Wayne, PA CEO Warren Mosser http://www.safeguard.com/

· Incubator for Software, Communication, and eBusiness Companies

· ICGE (Internet Capital Group) (ICGE) – Their B-B incubator

· Incubating over 200 companies with a direct interest in 45 of them

Brokerage

Recommendation

Sentiment

Sapient Corp. (SAPE) Cambridge, MA CEO Jerry Greenburg http://www.sapient.com/

· Business and technology consultants

· Spun-off from HWP

724 Solutions (SVNX) Toronto, Canada CEO Gregory Wolford www.724.com

· Internet infrastructure for on-line banking

· Now focused on IP-based network and data services in the mobile arena

Terra Lycos (LCOS) Waltham, MA CEO Abel Linarea www.lycos.com www.terra.es

· Also see Terra In Telecom section

· Alliance with AT&T for voice communications on the web

· Acquired Tripod

· Lycos bought by Terra Networks of Spain

· Now called Terra Lycos

· Lycos Europe – bought Spay Networks of Sweden for $571.8M – Swedish Internet portal

· CEO Robert Davis resigning (Lycos’s founder)

Brokerage	Recommendation	Sentiment
JP Morgan
Piper Jaffray
Schwab Soundview

United Online (UNTD) Westlake Village, CA CEO Mark R. Goldston www.unitedonline.net

· Formed through the merger of Juno and Netzero in September 2001

· Subscribers:

· 3.2M subscribers – October 2004

· 1Q2003 – First ever profit

· Bought Classmates Online for $100M

· Big Blow of June 2005:

• Supreme Court ruled that Cable TV companies do not have to share their high speed cable lines
• EarthLink and other Dial-up ISP’s wanted to use cable to offer broadband

Brokerage	Recommendation	Sentiment
Goldman Sachs
Piper Jaffray
Raymond James

Verisign (VRSN) Mountain View, CA CEO Stratton Sclavos www.verisign.com

· Digital Trust Services

· Web Site payment and services, SSL certificates

· Network Solution Unit – Web address

· Operates central registry for all .com, .net and .org suffixes

o Get $6 annually for EACH and all .com, .net, .org names

o Control the registry till 2007

Verisign Acquisitions and Stakes:

· Acquired Illuminet holdings for $1.2B

o Largest independent “Signaling systems” in the US

o Enables telephone carriers to connect voice calls across their networks

· Has two acquisitions into telephony with Illuminet Holdings and H.O. Systems

· Acquired Jamba for $273M – May 2004

o Jamba is a German wireless content provider

· Acquiring LightSurf Tech for $270M – January 2005

o LightSurf specializes in cell phone photography tech and was founded by Phillippe Kahn who is a Silicon Valley Icon – He started Starfish and Borland

o Will increase VeriSign’s revenue by $30M in 2005

o Developing technology for modification and transfer of pictures

· Acquiring iDefense for $40M – July 2005

o Security and Intelligence software and technology

Verisign General Info:

· Text-Messaging Network - With Mobile Spring

o Metcalf – SMS –short messaging service for mobile phones

o Network that manages SMS’s across different carries networks

o 2004 – Handled roughly 30% of all US cell phone text messages

· In 2001 – 6.5% of its revenue came from companies in which Verisign had investments

· 1/3 rd of its revenue from domain names

· Internet Services Group - VeriSign’s unit that focuses on security payments and e-commerce

· Verisign Communication Services – Intelligent communication and content services

Brokerage	Recommendation	Sentiment
JP Morgan
Smith Barney
Bear Stearns

Yahoo (YHOO) Santa Clara, CA CEO Terry Semel www.yahoo.com

· Started in 1995 by two Stanford engineering students, Jerry Yang, and David Filo

· Went public in March of 1996 at $13 – went up 483.5% during 1997

· “Yet Another Hierarchical Officious Oracle”

· Most popular Internet tool of the early and late 1990’s

· Second largest search engine in 2003

Yahoo Acquisitions and Stakes:

· Bought Geo Cities for $4.7B – web community

· Bought Broadcast.com for $5.7B

· Bought eGroups for $420.1M in June of 2000 – makes and manages email messaging groups

· Stake in Mingpao.com – Online Hong Kong portal

· Acquiring Kimo.com of Taiwan for $146M – Taiwan’s largest portal and has 30M daily page views and 4M registered users

· Pact with Sony – PressPlay – music service with Vivendi

· Bought Launch Media

· Acquired HotJobs for $436M

· Acquired Inktomi for $235M ($290M) – Internet search services – March 2003

· Acquired Overture Services for $1.63B – July 2003

· Overture’s advertising services allows clients to display ad’s tailored to an Internet users specific web searches

· Overture owns Alta Vista and Fast Search & Transfer of Norway

· Acquiring 3721 Network Software for $120M – Makes Chinese language software for web searches – November 2003

· Acquiring Kelkoo of Paris for $576M ($633M) – No.1 European comparison shopping site

· Acquired OddPost for $29M - July 2004

· Web based email and news aggregate service

· Acquired MusicMatch for $160M

· Will merge MusicMatch with Yahoo Launch Service

· Yahoo Launch Service streams music videos and music online without downloading the actual song or video

· MusicMatch Jukebox extremely popular tools for MP3 burning and ripping

· Has 60M users and sells 1.5M to 2M songs a month

· Major bread and butter is radio on-demand with its $3 to $5 radio subscription

· On Demand song database of 700,000 songs with unlimited songs for $10 a month

· Softbank has a 4% stake in Yahoo was 7.3% at one time

· Exclusive distributor of Jib-Jab Media – Jib-Jab makes animated cartoons with a political slant that was popular in the 2004 election – Announced January 2005

· Acquiring Stadeon – March 2005 – Makes technology for playing online video games, including multi-player, over mobile phones

· Acquiring Ludicorp Research & Development – photosharing website – March 2005

· Acquiring Dialpad Communications which makes software to connect telephones and computers – June 2005

· Bought the 33% stake in Yahoo Korea that they didn’t already own – November 2005

· Controls a 30% stake in Yahoo UK, Yahoo Germany, and Yahoo France

Yahoo Notables and Stats:

· Revenue Stream:

· In 2000 - 80% of their revenue is from online advertising – 67% of that is from dot-com companies

· September 2001 – Dot com ads 23% of total – was 40% September of 2000

· November 2001 – Advertising was 76% of their revenue

· Had 3700 advertisers in 4Q2000

· 2001 ad revenue dropped 35% from 2000

· 2002 - revenue forecasted at $800M

· April 2002 – Advertising 63% of revenue

· 3Q2001 Revenue – AD, Marketing services – 72.7%, Fees and listing – 22.3%

· 3Q2002 Revenue - AD, Marketing services – 59.2%, Fees and listings – 33.4%

· 2003 – Expected 34% revenue growth over 2002

· April 2004 – 84% of revenue from Ad sales

· International revenue 21%

· 5.8M paying customers – primarily though SBC DSL

· 3Q2004 – Ad revenue – 84%

· 7.6M fee paying subscribers

· International revenue – 28% of sales

· 4Q2004 – 85% of revenue from Ad’s

· 2Q2005 – 87% of revenue from Ad’s and listings

· International revenue was 31% of sales

· Users:

· Has 180M users and 900M daily page views a day –2000

· 2002 - 237M users

· Only made $0.04 a share in 1997

· 2002 – More Ad money went to Yahoo than AOL (Yahoo - $463.4M, AOL $362.3M)

· Search market share:

· July 2003 - Google 32%, Yahoo 23%, AOL 19%

· Full year 2007 Ask internet search market share – 22.9% (Google -58.4%, Microsoft - 9.8%, Time Warner - 4.6%, Ask - 4.3%.

· Overture – Contributed to 20% of revenue 2Q2003

· 2Q2003 – Generated 49 cents in revenue per average user

· Merchant Ads – Range from 13 cents a hit to $1 plus when users click on the ad

· International Operations – 2003 – First time profitable

· Not including Japan, International operations contributed to 20% of revenue

· 3Q2004 – Represented 28% of revenue

Yahoo General Info:

· CEO Succession:

· March 2000 – CEO Tim Koogle stepped down

· New CEO Terry Semel from Warner Brothers

· Stock fell 21% Oct 11, 2000 on report that only 88% of its top 100 advertisers renewed their contracts as compared to 98% in 2^nd quarter 2000

· Yahoo Japan –No.1 portal in Japan – controls 32.6%, Softbank controls 51.2% - started in 1996

· Is Japans largest auction site

· Yahoo working with Aozora Bank to offer banking services in Japan

· Search Technology:

· Dropped Inktomi search engine for Google’s in 2000 - will still use Inktomi for business info portal

· Yahoo bought Inktomi in 2003

· Will no longer use Google as their primary search technology and go with their own tech – 2003

· Yahoo has been with Google since 2000

· Yahoo shopping sites use Inktomi technology

· The Ad market and paid inclusions:

· Search related marketing revenue is thought to be crucial to Yahoo going forward and ability to generate more revenue overseas

· Didn’t expect a rebound in the online ad market until the middle of 2002

· Agreement with Overture – For a fee, offers advertisers prominent placement in Yahoo’s search results

· Overture brought in $30M-$35M in 3Q2002

· “If it weren’t for Overture, it doesn’t appear Yahoo would be reporting positive operating income” – November 2002

· Paid inclusions are excepted to add $40M to Yahoo’s revenue in 2004

· Search related ads expected to produce $946M in 2004 with total revenue around $2.2B

· Will offer online ad to small and mid-sized web publishers similar to Google’s Adsense in 2005

· Focus for early and mid 2000’s

· Wants to offer paid services and a new direction in Hollywood entertainment

· Concentrating on Entertainment, Financial Services, Commerce, and Communication

· Dropping out of the Auction market in Europe

· Acquisitions going forward:

· Focus on obtaining talent and ones that complement their current strategic business plan

· Top priority - Major push to expand outside of the US

· Yahoo Premium Services:

· Focusing on premium services and rolling out broadband services with SBC

· Receives a portion of the subscription fee and shares ad revenue

· Yahoo Platinum – Premium service for $9.95 a month – Entertainment news, sports, video and programming

· Launched in 2003 and shuttered and the end of 2003

· Yahoo Music Unlimited – Access to listen to unlimited songs for $6.99 a month or $60 a year

· Yahoo China – “Yisou” – Chinese search portal

· Owns 3721

· Once had 44 business units – In 2004, trimmed down to four

· Yahoo Media Group – Yahoo putting a lot of effort into this group and which content the consumer will be supplies

· Moving most of its offices to Santa Monica to the “Yahoo Center”

· Three sources of revenue for Yahoo – Search, Display Ads, and Fee-Based Services

· “We sleep better at night knowing we have three sources of revenue” – CEO Terry Semel – March 2004

· Yahoo and some of its marketing partners:

· Yahoo and SBC

· DSL:

· Has 4.7M DSL subscribers and No.2 in the US after Comcast for high speed Internet

· Yahoo gets roughly $4 per DSL subscriber

· Developing set-top box software for SBC’s launch into the delivery of TV from fiber into homes

· Yahoo and Cingular

· Developing cell phone content for Cingular users with ability to send movies and photos from cell phones to TV or PC

· Yahoo and Philips

· Developing content for Philips TV sets for music and video programming

· Yahoo and Verizon – Offering a portal for Version wireless customers for browsing the Internet on their phones – Announce January 2005 – Verizon was previously with MSN

· Yahoo and Clear Channel – Clear Channel now shifting 25% of their Ad budget to online adverting – Announced July 2005

· 2004 – “The year which we witnessed the begging of a tipping point in Advertising” – CEO Terry Semel

· Yahoo VS Google:

· Both have completely different approaches

· Google is focused on search and Yahoo is focused on content and media/entertainment in 2004

· “Yahoo sees itself as a media company, Google sees itself as a technology company” Shelby Bonnie, CEO of CNET Networks

· Users send an average of 4.8 hours a month on Yahoo’s site compared to 35minutes on Google – Roughly a eight time multiple for Yahoo – 2004 stat

· Google pulled in 58% of all search related revenue in 2004 and expected to garner 24% of the expected $13B in US online ad revenue ion 2005

· Yahoo Photo

· Yahoo and Target teamed up to offer photo printing service that can be picked up at target while using the Yahoo photo website

· May help increase the number of resisted users for yahoo

· 2007 Focus:

· October 2007 returning CEO Jerry Yang outlined three priorities: Provide an open technology platform, become the home page for Internet users, and a “must buy” for advertisers.

Internet General Info

AMEX Internet Index – New (IIX)

GSTI Internet Index (GIN)

· Banner Ads - % of people who click through .3% to .5% - junk mail – 2%

· Napster accounted for 3%-4% of Internet traffic during its hey day

· Only Air Travel, PC’s, Books, and Hotels (in sequential order in market share) racked up at least $1B in online sales in 1999 and accounted for 2/3^rd’s of the $17.3B in online consumer sales

· Web Hosting forecasted to become a $28.5B business by 2005 – In 2000 it was $3.5B

· 2002 – Internet calls made up 10% of the International telecom traffic

· 2002 – More than 41% of the remaining 209 publicly traded Internet companies were profitable in 4Q2002

· EachNet.com – China’s biggest online trading site – EBay has a 33% stake

· DSL is fundamentally cost disadvantageous

· 2002 - 9% of hotel rooms were booked through 3^rd party web sites

· Spam – 40% of EarthLink Emails are Spam – 70%-80% of AOL’s emails are Spam

· EV-DO (Evolution-Data Optimized) – Different from WiFi – data speeds of 300-500 kb/sec – relies on cell phone networks

· Most expensive key words in advertised search results – Mesothelioma – April 2004 – Attorney paying through the roof, they see the case as slam dunk

· Advertisers spent $2.5B for key search words in 2003

· Internet AD tracking company – Interactive Advertising Bureau

· 2004 – Search related ad rev increased by the double digits in 2004 from 2003

Broadband Numbers and Stats:

Also see the Telecom section for more stats

· August 2001 – Only 9% of US homes have a broadband connection

· 4.6% of the US has DSL – 10.4% has cable – March 2003

· End of 2002 – 21% of the 72M US households with an Internet connection have DSL or cable (27% use broadband)

· 2003 – 44% of US use broadband

· 2004 – Broadband was available in 94% of the US’s zip codes though only 5% of towns smaller than 10,000 had broadband availability

WiFi

· 802.16 (WiMax) – range of 31 miles – could be the next big thing in wireless broadband

Internet and Its Reach:

· China – March 2001 – Has 33.7M Internet users

· Feb 2002 – 54% of the US uses the Internet - 66% of the US population using computers

· 2003 – 73% of American’s are online

Odds & Ends

· Japanese Internet Providers:

o Fijitsu “Nifty”, NEC “Biglobe”, Mitsubishi Electronic “Dream Train Internet”, Sony “Sonet”, Matsushita “Hi-lo”, NTT Data “DreamNet”

· Softbank – President Masayoshi Son – has investments in 609 companies

· 70% of all online purchases in Brazil were for music in 2000

B2B - Companies

Oracle – Database Software

i2 Tech – Supply chain Software – software that creates private or public market places – having a 2-1 stock split on Dec 4^th, 2000 – Bought Aspect development

Manugistics – Supply chain software

BroadVision – Financial software

Ariba – Procurement software

Commerce One – order entry

China’s top Internet Portals:

· Sohu.com (SOHU)

· Sina.com (SINA)

· Netease.com (NTES)

· Tom Online (TOMO)

Search Engine Market Share

Company April 2003 October 2003 May 2004

Google 29.1% 35.2% 34.7%

Yahoo 28.1% 25.9% 30.0%

AOL 16.3% 16.3% 15.0%

MSN 14.7% 15.3% 15.4%

Ask Jeeves 3.2% 2.9% 3.0%

RIP

Engage INC (ENGA) Andover, MA CEO PAUL Achaut www.engage.com

Excite At Home (ATHM) Redwood City, CA CEO George Bell www.home.net

Ideal Lab

· New Internet incubator – Jack Welch (GE) on Board

· Did Etoys, GOTO, Netzero, Tickets.com

Razorfish (RAZF) New York, NY CEO Jeffrey Dachis http://www.razorfish.com/

· Internet and infrastructure consulting firm

· Acquired by SBI for $8.2M

ZDNET (ZDZ) New York, NY CEO Daniel L. Rosenweig www.zdnet.com

· Part of Ziff-Davis

· Bought by CNET

Broadband Numbers:

4Q2002

Company Subscribers

Comcast 3.6M

Time Warner 2.6M

SBC 2.2M

Verizon 1.8M

Cox 1.4M

Bell South 1M

EarthLink 800,000

AOL 700,000

DSL Numbers

2Q2003

Company Subscribers DSL Market share

SBC 2.77M 12.5%

Verizon 1.931M 8.7%

Bell South 1.225M 5.5%

Qwest 560M 2.5%

Covad 453M 2.0%

Cable Company Broadband Numbers

2Q2003

Company Subscribers Cable Broadband Market share

Comcast 4.38M 19.8%

Time Warner 2.96M 13.4%

Cox 1.675M 7.6%

Charter 1.349M 6.1%

Cablevision 921M 4.2%

Cable V.S DSL V.S Powerlines V.S Dial-up connections – February 2004 forecast

Delivery Method US Subscribers Est. 2004 Growth

Cable 15.7M 29%

DSL 6.6M 41%

Powerline 0 0

Dial-up 39.5M (9%)