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Daily Trouble
By
How Did it Find Trouble? Can the leader in online loyalty programs betray its own shareholders? That is a loaded question. For the fortunate investors who were able to get into MyPoints.com at the $8 initial public offering (IPO) price back in August, paper profits remain. However, for those who chased the stock -- bidding it to a high of $26 1/2 just last month -- loyalty comes with painful lessons. MyPoints is an intriguing company that fell victim to the unsustainable hype surrounding its dot com handle. No bones about it, MyPoints has a captive audience. More than four million online users welcome pseudo-spam from MyPoints that they would otherwise probably reject. Why? MyPoints rewards its targeted mail recipients with an accrual point system. Like frequent flier mileage programs and other credit card loyalty programs, users can convert accumulated participation into tangible rewards. However, there is no free lunch. You might have to go through as many as 100 mailings before you earn a $10 gift certificate for places like Chili's, Blockbuster, or Barnes & Noble. The advertising client revenues more than aptly compensate for the rewards that eventually get doled out. It's a clever strategy. As a first mover and making major headway in its effort to be the first to scale, the company drew a great deal of interest. Yet, when the market began to correct, it was the newer issues that lacked the faith of nervous investors. Loyalty -- it cuts both ways. Business Description MyPoints began in 1996 as Intellipost. A year later it launched BonusMail -- a pioneer in online loyalty marketing. Last year the company acquired Experian, its prize jewel being BonusMail's competitor, MyPoints. This year the company has combined the entities, renaming itself in March to MyPoints.com. In June the company rolled out MyPoints Shopping! by setting up loyalty programs for others like J.C. Penney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %>, Hickory Farms, and Cyberian Outpost <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COOL)") else Response.Write("(Nasdaq: COOL)") end if %>. Financial Facts
Income Statement How Could You Have Seen it Coming? MyPoints has a lot going for it. It is well entrenched in an industry segment destined to grow rapidly. While many online marketing companies are dependent on just a few accounts, MyPoints is well-diversified. Last year its largest customer accounted for less than 10% of total revenues (9.5%). Its client list is also full of the Internet's heaviest hitters. eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %>, eToys <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ETYS)") else Response.Write("(Nasdaq: ETYS)") end if %>, and, yes, even we here at the Fool, have all tried to grow our audience through the MyPoints program. Unfortunately, in the short term, bad timing in frothy sectors can crumble even the most intriguing of companies. MyPoints came public just a few weeks after the S&P 500 Index hit its latest all-time high back in July. As the market became defensive, seeking out quality blue chips or at the very least technology companies with established track records, the MyPoints.coms of the market found few takers. Where to From Here? Forrester Research projects that online advertising will grow from $2.8 billion to $22.2 billion over the next five years. Companies like MyPoints seem destined to ride that growth. Profits are at least two years away -- maybe further. Right now the company is spending twice as much on marketing as it is taking in from ad sales. However, with a growing client list and probably the only feasible e-mail marketing business model for companies looking to gain new members, MyPoints is an interesting equity at these price levels. While revenues will add up to just over $10 million this year, Wit Capital expects that sum to triple next year and more than double to $66.6 million by 2001. With MyPoints trading at just over four times the demonic 2001 sales projection, it would be a bargain by Internet standards. The fact that MyPoints will also be licensing its technology for partner companies to drum up their own proprietary loyalty programs should also provide a steady stream of royalties. For patient investors, that might lead to one final lesson in the realm of loyalty -- one that finds many users signing up with MyPoints in the first place. Loyalty pays.
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