DJIA 9048.67 +96.65 (+1.08%) S&P 500 1148.56 +14.72 (+1.30%) Nasdaq 1914.46 +19.72 (+1.04%) Value Line ndx 958.08 +9.51 (+1.00%) 30-Year Bond 107 4/32 unch 5.63% Yield
Internet software and portal company Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> rose $8 5/8 to $35 11/16 on reports it is talking with major media companies to supply content for its Netscape Netcenter portal site. In an interview with CNBC, Executive Vice President Michael Homer said the company is considering possible relationships with companies such as Walt Disney Co.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> ABC unit, General Electric's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> NBC division, CBS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBS)") else Response.Write("(NYSE: CBS)") end if %>, and News Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> Fox network, among others. The news added fuel to the merger speculation that has engulfed other Internet-related stocks recently. Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> gained $12 3/8 to $169 7/8, Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> climbed $6 7/8 to $100 3/8, Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> added $6 5/8 to $82, and Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> advanced $1 15/16 to $37 13/16.
Several stocks were lifted today unwittingly (or perhaps wittingly) by the announcement of Lehman Brothers' annual "ten uncommon values list." Among those making the much-ballyhooed compendium were office products retailer Office Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %>, which moved up $1 13/16 to $33 3/8; conglomerate Tyco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TYC)") else Response.Write("(NYSE: TYC)") end if %>, which tacked on $1 3/4 to $64 3/4; and Craftsman tool maker Danaher Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DHR)") else Response.Write("(NYSE: DHR)") end if %>, which gained $4 5/16 to $41. The advances created arbitrage opportunities as market participants subsequently bid up the shares of the companies' merger partners. Viking Office Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VKNG)") else Response.Write("(Nasdaq: VKNG)") end if %>, whose stock swap deal with Office Depot just cleared an antitrust waiting period, added $1 9/16 to $32 15/16. Electronic test and measurement equipment firm Fluke Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLK)") else Response.Write("(NYSE: FLK)") end if %>, which is closing its all-stock merger with Danaher later this month, advanced $4 3/32 to $36 15/16.
Milwaukee-based regional bank Firstar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FSR)") else Response.Write("(NYSE: FSR)") end if %> shot up $8 3/16 to $46 3/8 after announcing it will merge with Cincinnati-based Star Banc Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STB)") else Response.Write("(NYSE: STB)") end if %>, which fell $1/4 to $63 5/8, in a stock swap valued at around $7.2 billion. Firstar shareholders will receive 0.76 shares of the new combined company for each Firstar share, while Star Banc shares will be converted into shares in the new company on a one-for-one basis. Based on yesterday's closing prices, the deal values Firstar at $48.55 a share, a 27% premium. The transaction is expected to be 5% accretive to the combined company's earnings per share in 1999 and 12% accretive in 2000. The combined bank, with assets exceeding $38 billion, will go by Firstar Corp., and its corporate headquarters will be in Milwaukee, while its consumer banking and specialized lending operations will be headquartered in Cincinnati. Star Banc head Jerry Grundhofer will become the new president and CEO, while Roger Fitzsimonds, chairman and CEO of Firstar, will become chairman of the new board comprised of 18 representatives from Star Banc and 14 from Firstar.
The American depositary shares of Bank of Tokyo-Mitsubishi <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MBK)") else Response.Write("(NYSE: MBK)") end if %> rose $11/16 to $11 11/16 on encouragement that the Japanese government is close to announcing a plan to help its ailing banks with their bad loans, suggesting that officials there may be ready to commit to solid reform initiatives in order to turn around the country's troubled economy. Japan intends to mimic the U.S. experience during the S&L crisis by establishing a government management agency to oversee the sale or merger of failed banks, funded partially by money from the annual budget. If no buyer is found, the banks would then be run by the state. Further, the government is considering an income tax cut as a way to spur economic growth. The country's world equity benchmark index securities, or Japan WEBS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: EWJ)") else Response.Write("(AMEX: EWJ)") end if %>, picked up $1/2 to $10 5/16 in New York as the Japanese Nikkei index was up 3.37% overnight.
QUICK TAKES: Internet services and community firm America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> gained $5 5/8 to $110 3/4 after reaching a three-year advertising agreement with consumer products giant Unilever <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UN)") else Response.Write("(NYSE: UN)") end if %>... Several large financial services stocks moved up today as Alan Greenspan and his pals at the Federal Reserve Board left short-term interest rates unchanged. Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> added $3 7/8 to $96 1/8, Citicorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> advanced $6 1/2 to $155 3/4, NationsBank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> rose $3 1/4 to $79 15/16, BankAmerica Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> increased $3 9/16 to $90 1/16, and Fannie Mae <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNM)") else Response.Write("(NYSE: FNM)") end if %> climbed $3 1/4 to $64... Sneaker maker Nike <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> raced $3 3/8 higher to $52 1/16 after reporting fiscal Q4 EPS (before restructuring charges) of $0.04, which was a penny better than the Street estimate. The guidance prompted a series of upgrades from Wall Street firms, but not from influential Salomon Smith Barney analyst Faye Landes.
Commercial and military aircraft maker Boeing Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> rose $2 7/8 to $47 7/16 after winning a $1.5 billion, nine-year deal to provide repair, maintenance, and modification services to the U.S. Air Force's fleet of KC-10 tankers. Boeing also delivered 61 aircraft in June and 139 in fiscal Q2 -- both company records -- which puts it on a pace to deliver 550 airplanes this year... Casual apparel retailer The Buckle Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKE)") else Response.Write("(NYSE: BKE)") end if %> gained $2 5/16 to $31 13/16 after being upgraded to "buy" from "neutral" by Schroder & Co... Insurer and financial services company Conseco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNC)") else Response.Write("(NYSE: CNC)") end if %> rose $3 to $49 7/8 after closing its stock swap with Green Tree Financial Corp. for roughly $6 billion, which is $1.5 billion less than the originally estimated cost of the merger.
Internet services provider Rocky Mountain Internet <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RMII)") else Response.Write("(Nasdaq: RMII)") end if %> added $2 9/16 to $12 3/4 after buying privately held software developer Application Methods for $5 million in stock... Cable-based Internet services provider At Home Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATHM)") else Response.Write("(Nasdaq: ATHM)") end if %> gained $6 3/16 to $53 1/2 after saying it signed 10 new distribution agreements in fiscal Q2 with North American and international cable operators... Pasadena, California-based Internet services provider EarthLink Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELNK)") else Response.Write("(Nasdaq: ELNK)") end if %> gained $10 1/4 to $87 after setting a two-for-one stock split payable July 20... Field-programmable microcontrollers and specialty memory products maker Microchip Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCHP)") else Response.Write("(Nasdaq: MCHP)") end if %> moved up $4 1/8 to $30 1/4 after saying its fiscal Q1 earnings will be up about 19% from the $0.26 per share earned in the prior quarter. The Street had been expecting earnings of $0.27 per share in the period.
Chipmaker Cirrus Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRUS)") else Response.Write("(Nasdaq: CRUS)") end if %> added another $7/16 to $11 9/16 after rising yesterday on news that it will introduce a semiconductor that can control a computer's disk drive on its own... Office furniture supplier Herman Miller <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MLHR)") else Response.Write("(Nasdaq: MLHR)") end if %> gained $3 3/16 to $27 1/2 after reporting fiscal Q4 EPS of $0.42 versus $0.29 a year ago, beating the Street's estimate of $0.35... Homebuilder Lennar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LEN)") else Response.Write("(NYSE: LEN)") end if %> tacked on $2 1/2 to $32 after being named the "Focus 1 selection" of the week at Merrill Lynch... Biotech and genetic researcher Gene Logic Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GLGC)") else Response.Write("(Nasdaq: GLGC)") end if %> moved up $3 1/8 to $10 1/8 after signing an alliance with Hoechst Schering AgrEvo to develop genetically-enhanced crop protection and improvement products. Fees paid to the company could total $45 million over the entire collaboration period, according to Gene Logic.
Telecommunications systems manufacturer Advanced Fibre Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFCI)") else Response.Write("(Nasdaq: AFCI)") end if %> was pummeled today, losing $20 15/16 to $19 1/8 after warning that it will miss revenue and earnings expectations for the second quarter. With Q2 revenues projected at around $83.5 million, below the analysts' mean revenue estimate of $97.1 million, the company will come in with a 60% year-over-year revenue growth rate for the first half of 1998. Respectable, but it's not the 73% analysts were expecting. Meanwhile, Q2 EPS is expected to come in between $0.07 and $0.09, which will fall short of analysts' mean estimate of $0.17. In its press release, Advanced Fibre mentioned in passing the loss of its business with GTE (which accounted for 19% of its 1997 revenues), a material fact that doesn't seem to have been disclosed in any of the company's press releases over the last three quarters nor in its 1997 10-K filing. As if the earnings warning weren't bad enough, the company also announced the resignation of President and CEO Carl Grivner, who has become CEO of Western Hemisphere Operations for Cable & Wireless.
Medirisk Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDMD)") else Response.Write("(Nasdaq: MDMD)") end if %>, which provides proprietary database products, decision-support software, and analytical services to the healthcare industry, tanked $13 15/16 to $6 5/16 after announcing it expects Q2 earnings in the range of breakeven to $0.02 per share (before charges). That compares with EPS of $0.07 in the year-ago period and the $0.12 expected by analysts. The company blamed the anticipated shortfall on "softness" in sales of its financial products and, to a lesser degree, in its physician credentialing services. The company expects weakness in these areas to carry over into the second half. Medirisk also announced the acquisition of healthcare information firm Sweetwater Health Enterprises Inc. for about $6.2 million in cash. The purchase will result in a second quarter charge of roughly $4.25 million for the acquisition of in-process research and development.
QUICK CUTS: ConAgra Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAG)") else Response.Write("(NYSE: CAG)") end if %> lost $3 1/8 to $28 9/16 after reporting Q4 EPS of $0.36, down from $0.41 in the year-earlier period. Analysts had expected EPS of $0.39. Deutsche Bank Securities lowered its rating on the food company to "hold" from "buy"... Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> was cut $1 11/16 to $58 3/16 after Salomon Smith Barney lowered its Q3 EPS estimate for the electronics and computer maker to $0.62 from $0.65 but reiterated an "outperform" rating... Healthcare products maker Johnson & Johnson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> dipped another $3/4 to $73 1/4 following the FDA's rewording of the warning label for the company's Propulsid heartburn medication.
Morgan Stanley Dean Witter <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWD)") else Response.Write("(NYSE: MWD)") end if %> shed $1 1/4 to $90 1/8 after Donaldson Lufkin & Jenrette cut its rating on the investment bank to "market perform" from "buy" with a 12-month price target of $90 a share. DLJ suggests switching into Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> or Travelers <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %>... Investment bank Hambrecht & Quist <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HQ)") else Response.Write("(NYSE: HQ)") end if %> gave back $2 5/16 to $34 as speculation that it would be acquired by Credit Suisse First Boston dissipated... Semiconductor manufacturing products maker ATMI Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATMI)") else Response.Write("(Nasdaq: ATMI)") end if %> slid $1 13/16 to $13 3/16 after announcing it expects Q2 and Q3 earnings to be up to 50% below those of the comparable quarters last year. The company said business has been hurt as its customers in the semiconductor industry have slowed production and reduced inventories.
Telecommunications company Intermedia Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICIX)") else Response.Write("(Nasdaq: ICIX)") end if %> was cut $3 3/8 to $38 9/16 after announcing an unspecified restructuring charge and spelling out the details of its previously announced revamping, which will include consolidating its facilities and cutting about 280 jobs, or 7% of its workforce... Integrated security firm Checkpoint Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKP)") else Response.Write("(NYSE: CKP)") end if %> dropped $1 5/16 to $12 13/16 after warning it expects Q2 EPS between $0.09 and $0.11, and after reducing its EPS estimate for the full year to $0.50 to $0.55. Analysts had predicted Q2 EPS of $0.17 and 1998 EPS of $0.73... Agricultural genetics company Pioneer Hi-Bred International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHB)") else Response.Write("(NYSE: PHB)") end if %> sank $4 1/8 to $37 1/4 after announcing that 1998 earnings may be at or below the lower end of the $1.07 to $1.20 per share range established earlier due to the strength of the U.S. dollar, the competitiveness of the North American market, and challenges outside of North America.
Computer-aided design and manufacturing software company Parametric Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMTC)") else Response.Write("(Nasdaq: PMTC)") end if %> shed another $2 5/16 to $24 13/16 on concern that economic troubles in Japan and a shift to a new product will hurt sales... Staffing services provider Kelly Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KELYA)") else Response.Write("(Nasdaq: KELYA)") end if %> fell $3 1/4 to $32 1/8 after saying it expects 4% to 6% growth in the second quarter and a slowing in the rate of sales growth... Local exchange carrier Allegiance Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALGX)") else Response.Write("(Nasdaq: ALGX)") end if %> was disconnected for a $1 1/4 loss to $13 3/4 from an initial offering price of $15, which already had been lowered from $16 to $18. The offering was reduced to 10 million shares from 12 million shares before the debut... Disk arrays and SCSI adapters designer Ciprico Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPCI)") else Response.Write("(Nasdaq: CPCI)") end if %> lost $1 1/2 to $8 9/16 after announcing it has lowered its Q3 EPS estimate to $0.11 to $0.15 a share.
FOOL
ON THE HILL
An Investment Opinion
by
Louis Corrigan
AOL and Digital Courier
Tuesday's deals with E*Trade Group, Waterhouse Securities, and DLJDirect prove once again that America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> possesses marketing muscle that demands a pretty penny. The three brokerage firms all agreed to pay the online service $12.5 million a year for the next two years to be featured on AOL's personal finance channel. That price is reportedly 3 to 4 times the previous average fee. Then again, with Cendant, Barnes & Noble, and other firms already paying millions to reach AOL's 12 million subscribers, and with AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> reportedly interested in buying the whole shebang if AOL CEO Steve Case would just say yes, America Online's market leadership is hardly a secret.
So it's interesting to see the small fry that America Online has sometimes partnered with. For instance, the company's landmark $100 million deal with Tel-Save Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TALK)") else Response.Write("(Nasdaq: TALK)") end if %> last year was part of what scuttled any would-be marriage with AT&T. Yet that upstart long-distance provider has proved a favorite of short-sellers who deem Tel-Save's CEO Daniel Borislow unprofessional. Then there's Provident American Corp. (OTC: PAMC), a small insurance provider that rose sharply after signing a multimillion dollar deal this spring to market insurance to AOL subscribers. The stock then plunged into penny stock land after being delisted from the Nasdaq national market on June 12 due to failing to file its annual 10-K report. The company blamed "the untimely and unexplained resignation" on December 22 of its auditors Coopers & Lybrand.
The latest agreement to raise eyebrows came June 24 when AOL signed up Digital Courier Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DCTI)") else Response.Write("(Nasdaq: DCTI)") end if %> to market VideosNow (www.videosnow.com) through AOL and its Digital City service. Set to launch in August, VideosNow is an online video store that will sell over 100,000 titles, including Hollywood releases, foreign films, and instructional videos. Available in VHS, Beta, laserdisc, DVC, and Divx formats, titles will be delivered by mail. Rumors of this pact had sent Digital's shares soaring from around $4 in late May to $10 a share on June 23. Though the stock didn't get much higher, it has held fairly steady, closing today at $8 3/4, down $5/8 yet still light years from its $2 trading price in February.
Under the terms of the three-year agreement, Digital Courier will pay America Online at least $12 million and provide warrants to purchase up to $2 million in Digital stock. AOL will also get 3% of revenues on sales over $100 million and can increase its equity stake for additional carriage. Digital booked an initial down payment of $1 million in the just-completed June quarter, and the remaining $11 million will be paid in installments due at nine month intervals.
However, some investors have doubted whether Digital has the financial resources to handle this obligation. For the first nine months of FY97, the March 10-Q shows that the company generated just $0.4 million in revenues, most of which apparently came from the sale of a computer system to a firm owned by a former director. It also lost $5.3 million from continuing operations and reported just $6.9 million in cash as of March 31. Moreover, the filing noted that "[m]anagement projects that there will not be sufficient cash flows from operating activities during the next twelve months to provide capital to implement its marketing strategy for WorldNow Online."
More on WorldNow later, but this meant the company was short on working capital even before committing to the new AOL agreement. Given that it has the pick of the litter when it comes to partners, what was AOL thinking? Company spokesperson Tom Ziemba said simply, "We wouldn't do a deal with a company if we weren't confident that they were going to pay us."
In fact, Digital's recent filings don't offer an adequate picture of the company. The roots of this public company go back to Exchequer I, Inc., a firm incorporated in May 1985 that traded as a shell company on the OTC Bulletin Board until January 1995 when it merged with a direct marketing outfit called DataMark Systems. After this reverse acquisition, the new firm was called DataMark Holding, Inc. The stock continued to trade on the Bulletin Board until February 1997 when it moved to the Nasdaq national market. Private placements of stock in May 1996 had pumped in $16.4 million, with George Soros' Quantum fund and Dawson Samberg taking major stakes.
The drawing card was WorldNow (www.worldnow.com), a novel Internet network built by linking websites from local TV affiliates to DataMark's national WorldNow site in a channel format. The plan was for Digital to host websites for the TV stations and provide some content and national ads while the stations sold ads to local merchants and provided local content. In exchange for a cut of the combined ad revenues, WorldNow would build a brand in part by having the local television stations promote the WorldNow site on their TV broadcasts. That is, WorldNow hoped to become a Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> style Internet portal by first building a network of local sites like AOL's Digital City.
WorldNow now has 45 TV affiliates and hopes to capture 60% to 70% of 211 local markets in the U.S. But the idea now is to build this platform into something Digital can license to a Yahoo! or Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %>, with Digital serving as a kind of broker between the portal site and local affiliates. This strategy, though, has only developed after Digital dumped Sisna, an Internet service provider the firm bought in January '97 for 325,000 shares and sold back to its previous owner in March '98 for just 35,000 shares. It also follows the March '98 deal that sold off DataMark Systems, the company's direct mail subsidiary and main revenue generator, to Texas-based Focus Direct, Inc. for $7.7 million, $6.9 million of which is already in the bank. As part of the deal, Digital paid former DataMark Systems CEO Chad Evans $2 million for his 2.05 million shares of Digital stock.
This maneuvering doesn't challenge the suspicion that Digital is a crappy company whose stock has risen on hype related to the America Online deal. The recent activity can only begin to be explained by the fact that the public company now called Digital Courier is the product of a merger announced March 18 between the public company previously known as DataMark Holdings (old symbol, DTAM) and the private, San Francisco-based e-commerce firm called Digital Courier International. The combined firm has changed its name and stock symbol and is now run by R.J. Pittman, the former head of the private Digital Courier. While R.J. is no relation to AOL's Bob, he was co-founder of the successful online broker Lombard Securities, now Dean Witters Discover's service. (Neither the new or old Digital Courier Technologies has anything to do with Digital Courier International Corp., a Canadian firm that's now in bankruptcy proceedings.)
In an interview today, Pittman said that the firm is concentrated on its current content offerings, which include the weather information service WeatherLabs (www.weatherlabs.com) from the private Digital, the online retailer BooksNow (www.booksnow.com) and WorldNow network from the old DataMark Holdings, and the new VideosNow. Pittman is a techie who thinks Digital's technology platform and payment processing capabilities give the company an edge. He said that the firm's development relationship with Netscape <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %>, for example, allowed it to produce a WeatherLabs offering for the relaunched Netcenter portal in just three days.
Pittman said that Digital's full back-office processing capabilities will not only reduce costs in operating an online store such as VideosNow, but it could give Digital a cost advantage versus credit card and other transaction processing firms. One of Digital's long-range projects is to build a next generation online brokerage system that could automate securities clearing. Pittman said the firm has talked with Schwab, for example.
The first tasks, though, are to finalize the March merger agreement, raise more cash, and sign more marketing partnerships with Internet portal sites for VideosNow. The owners of the privately held Digital are supposed to get up to 5.8 million shares of the new company. About 1.9 million shares have already been doled out, but the earn-out portion is being restructured so that any hit to reported earnings will come sooner rather than later. The company is also looking to raise $6 to $8 million in private placements before floating a secondary offering for 1.5 to 2 million shares, potentially in early fall, assuming the stock is high enough for that to generate $24 to $30 million. Though exact numbers are hard to pin down at the moment, Pittman said there are perhaps 10 million shares currently outstanding, but just one million being actively traded.
Roughly speaking, then, Digital has an enterprise value around $85 million, currently unprofitable annual revenues of perhaps $2 million, and plans to spend a lot of money marketing VideosNow. Although that combination doesn't look immediately appealing, Pittman certainly strikes me as a far more legit online contender than the old DataMark ever was. Why did he bother linking up with the dubious DataMark in the first place? Pittman said that Art Samberg of Dawson Samberg and Robert Soros of Quantum, both of whom apparently like the company's new direction, asked him the same question. A lot of the old Digital's technology was still at the R&D level, Pittman explained. So going public by itself wasn't a real option. But he also said that among other things, DataMark's tech facility in Salt Lake City impressed him as state of the art, better even than operations run by the leading portal companies.
A major benefit, though, has been a new link to Wall Street. Inheriting well-known investors means Digital has new access to capital that it has never had before. And e-commerce outfits need cash to build their brands and to turn R&D into new product offerings. Whether the new Digital Courier can turn this apparently forthcoming financial support into a profitable business remains to be seen. But this is one case where a public company's past may prove something less than a prologue. I'm still skeptical, but a lot less so than before I talked to Pittman.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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