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Wall Street, California | STOCK EXCHANGE / James Peltz
and Michael Hiltzik

For One, Lycos Doesn't Excite; for the Other, It's a Prime Portal

May 25, 1999|James Peltz and Michael Hiltzik

Stock Exchange lets readers listen in as staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks.

Lycos (LCOS)

Jim: All right, Michael, today we look at another big Internet stock. Lycos is the third-biggest Web portal company, that is, a site Net surfers use as home base or as a search engine to find other sites. I say third-largest in terms of revenue, behind Yahoo and Excite, but one research firm says Lycos actually surpassed them in terms of viewership in March, with some 32 million visitors.

Mike: And where would Lycos rank in terms of losses?

Jim: Uh-oh, I see where this is going. Yes, it ranks up there with those, too.

Mike: Incidentally, let me just interject that these "viewership" figures you mentioned are a little misleading.

Jim: How so?

Mike: Well, Lycos is counting not only visitors to, its search-engine site, but also to a handful of other popular sites that it owns, like Angelfire and Tripod.

Jim: Which are favorite sites for those people with their own home pages.

Mike: Right.

Jim: Of course, Lycos is also one of these unbelievable Internet stocks that's skyrocketed above any rational valuation of the company. Its revenue last year was a paltry $56 million, and, while that number will be much higher this year, it still pales next to its stock-market value of $5 billion.

Mike: But here let me make a couple of general points about Lycos and its ilk. I don't like Lycos.

As an Internet search engine and site, more power to it. It works just fine. The dog goes out and finds the things you want. But as a stock, I think Lycos is crummy.

Jim: It's just the opposite for me. I don't see its search engine or Web content being particularly more notable than the other major ones.

Mike: Then what's there to like about it?

Jim: For starters, I don't look at Lycos as merely a stand-alone company. It's just gotten past one takeover offer, and I think it's going to get another, which is going to be one lever to lift this stock higher.

Mike: Boy, are we in disagreement this time.

Jim: Back in February, media mogul Barry Diller and his USA Networks struck a deal to buy Lycos and basically merge it with his own online interests, including Home Shopping Network and Ticketmaster Online. Except that one of Lycos' major stockholders, another Internet outfit called CMGI Inc., bitterly complained that Diller wasn't offering much of a premium over Lycos' trading price.

Mike: Not much of a premium? Diller offered a discount to the market.

Jim: OK. So the merger languished, and Lycos' stock lost about 25% of its value. Recently the deal was mercifully called off and Lycos' stock started rising again. Now it trades around $100 a share, but naturally it has no P/E, or price-to-earnings ratio, because it has no E, or earnings.

Mike: Right. It's got one of those P/Es that's either infinity or a mathematical impossibility--I don't remember what happens when you divide something by zero, but it's not good. At least not in the real world.

Jim: I think you made your point.

Mike: I'm not done. Before Diller came up with his offer, Bob Davis, the Lycos CEO, shopped this baby to every orphanage in town. He talked to NBC, which is owned by General Electric, and to CBS. He probably talked to Walt Disney. Finally he made the deal with Diller at some percentage under what his stock was selling for at the moment. So how many other offers would you guess were on the table?

Jim: Uh, let's see . . . none?

Mike: Clearly none. Furthermore, in the months since the Diller deal was announced, how many other bidders stepped up and offered to take Lycos over at a higher price? None. So how many potential bidders are really out there for Lycos, now that NBC has made its deal with Cnet, Disney has made its deal with Infoseek and other media companies have made their links with Net firms? Who really needs Lycos?

Jim: Look, you've actually reinforced my argument. Everyone is pairing up to have a stake in the Net, Lycos is a major player, and sooner or later it's going to get taken out. America Online bought Netscape. @Home is buying Excite. Yahoo is buying GeoCities. Need I go on?

Mike: What makes you think that a legitimate media company, one analogous to USA Networks, is going to want to pay any more than Diller offered if nobody bid against him? Particularly since in the four months that have passed, almost everybody else has filled up their dance card?

Jim: What, you think that once a company makes one acquisition in an industry, it's done? Perhaps one of these media giants will take Lycos in addition to the ones it already has. What I am saying is that investors should apply at least some takeover premium to Lycos, that's all, given all the Internet mergers we've seen recently.

Mike: Well, let's analyze these deals. America Online bought Netscape. That's an Internet company buying an Internet company. @Home is buying Excite. That's an Internet company buying an Internet company. Who else?

Jim: Disney bought a chunk of Infoseek.

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