Ask Jeeves, IPO Questions Here
January 1996 I was at industry conference Demo and watched the parade of companies come on stage to showcase their story to the world. One of them was a firm that allowed simple inputting of questions and supplied an immediate response.
A well-known venture capitalist friend of mine asked me what was the hottest demo of the show. I replied the simple answer firm.
Three and a half years later a similar firm is going public to much acclaim: Ask Jeeves. The venture friend missed this one.
Jeeves allows you to ask, for example, "how's the weather in London?" or "what is the prime rate?" or more important questions like "who was Lassie?"
An immaterial portion of revenue comes from a corporate Ask Jeeves product launched in December designed to run customer service queries run via the Web. "Which is your fastest CPU?" may be something a chipmaker may use, for example. Or "does that car come in blue?"
The company sells ads, which make up most of its revenue.
The search itself returns results in the form of answers and also links from having 'meta-searched' several search engines such as AltaVista, Yahoo! or WebCrawler. In the Lassie example it yielded Lassie video finds for purchase, although the question wasn't asking to buy a video. Suggestive e-tailing.
Ask Jeeves falls short on questions like "how's the stock market," or "how are Internet IPOs lately?" that reveals one of the key weaknesses of the model.
So I asked my abacus to crunch a few numbers. It replied that Ask Jeeves seeks a $243 million IPO market capitalization, at the $10 per share target price.
I estimate that Ask Jeeves may generate $6.5 million revenue for 1999, better than run rate on first-quarter numbers. On a value per page view (using the company's 1.9 million queries as page view source) I show ASKJ's IPO market cap at $128 per page view, about double an Infoseek market cap per page view. That's a lot of commerce and ads that ASKJ will need to deliver to sustain that premium I believe.
| Ask Jeeves | ASKJ |
| pro forma IPO | |
| Shares offered | $ 3.00 |
| Price target | $ 10.00 |
| Proceeds | $ 30.00 |
| Shares out | 24.35 |
| IPO market cap | $ 243.49 |
| 1Q99 revenue | $ 1.13 |
| 1Q99 loss | $ (4.87) |
| 1Q annualized | $ 4.53 |
| Estimated 1999 | |
| Revenue | $ 6.50 |
| Revenue multiple | 37 |
| Daily questions | 1.9 |
| (page views) | |
| Value/page view | $ 128.15 |
The IPO market cap implies a 37x revenue multiple, already a premium on a revenue multiple basis to the more established search engine peers such as Infoseek (NASDAQ:SEEK) and Lycos (NASDAQ:LCOS).
But my instinct says that ASKJ may pop and get attention similar to how simple search engine/ad placement auctioneer GoTo.com (NASDAQ:GOTO) did a few weeks ago.
GOTO went as high as $28.50 per share and closed June 28 at $22 with a market cap of $977 million. Revenue for GOTO in first quarter was slightly better than Ask Jeeves.
If that holds true then ASJ could see upper $30s on a market cap basis. My thinking is that retail demand may not push it that high, however. Maybe it finds holding ground in the upper $20s, given the market's weakness lately for Internet stocks.
Pros: natural language queries; simple; straightforward; lots of potential unrealized
Cons: too simple; to limiting; basic answers; low barriers to entry for rivals
Indeed, half of the $30 million it wants to raise on IPO is slated to build Ask Jeeves brand, both online and offline.
Let's examine the core again. General questions are handled well but specific ones or questions posed in "un-natural language" may cause Jeeves to sneeze.
It assumes users ask natural language questions in a simple format. Another drawback as I see it is the one-liner questioning it allows--what if you want to ask more than one question. How's the weather in London and which hotels are near the Thames River?" No answers. Jeeves (a butler logo is the company's mascot) is a one-question kind of guy. Don't ask Jeeves too much at once.
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November 21st, 2008 - Posted in hznj.com | edit |
