Jefferies 3rd Annual Internet Conference

Jefferies 3^rd Annual Internet Conference

NYC - February 28, 2007

I attended this conference and here are my notes from the presentations.

aQuantive.

• $442mm/$123mm EBITDA/28% margin
• 40-90% rev growth over last several years
• $2.5B market cap, Enterprise Value is 20X EBITDA
• Divisions are
  • AvenueA/Razorfish (Agency), $267mm/17% margin
  • DrivePM (Ad Network) and $52mm/18% margin
  • AtlasDMT (Technology Licensing) and $122mm/41% margin
• $540 million in media spend in 2006
• They service 27% of Fortune 100 in 2006
• DrivePM has 250 online “premium” publishers
• Revenue by category: Travel & Entertainment – 16%, Fin Svcs 17%, Pharma 11%, Retail 14%, Telcom 8%
• Competitive dynamics: full value chain, internal operating leverage, internal customer/supplier relationships

Shutterfly

• $123mm/$20mm EBITDA/17% margins
• 50% revenue growth for last several years
• $400 million market cap, Enterprise Value is 10x EBITDA
• Photo print, scrap booking, greeting cards and calendars
• Premium brand and vertically integrated
• 5 million orders sent in 2006
• 77% of new customers come direct and are “free”
• Avg cost of paid new customers is $12
• They have 70 customer segments that get messaged differently
• 25-44 yrs old (63%) 84% female, 50% with children, $75k+ income
• 1.7 million transacting customers in 2006, (955k in Q4) 2 average orders per customer per quarter(?)
• Money Magazine did a ranking of photo services and ranked them the best.
• Very impressive presentation – I really liked the CEO.  I am going to test them out and probably switch from Ofoto if what he says holds true.

WebSite Pros (WSPI)

• $52mm/$6mm EBITDA/13% margin
• 45% CAGR growth rate, Enterprise Value is 20x EBITDA
• 74,000 paying SMBs for web sites
• 23 million SMBs
• Slightly over 50% have web sites
• $50 to $100 per month
• 1-800-get-site
• They build the site, get a domain, submit to search engines.  They include maintenance (30 minutes a month).
• For an extra fee will buy SEM
• They also track e-mail responses, phone calls and faxes.
• They own Leads.com
• They own RenovationExperts.com
• They work with Discover (original partner, was 90% of lead flow now 46%), IBM, Yahoo, Register.com, Eathlink, Quickbooks, FirstData, Verio and VistaPrint (these companies turn over their customer list and WebSite Pros does the outbound sales and they get a small revenue share).
• They have 200+ FTE in telesales. (2+ year avg tenure for reps) Six call centers.  Hire unskilled and then train.  Build as many as eight web sites a day per employee.
• Emerging competitors Network Solutions, Web.com and Yahoo.
• Avg customer is 18 months.  Break even for customers is 3 months.
• Impressive, non nonsense, just the facts mam’ CEO
• Expect 20 to 25% operating margins in two years.

InPhonic (INPC)

• Largest sellers/activator of wireless phones on the Internet
• $406mm/$24.5mm Adjusted EBITDA
• Projecting $500mm this year, guiding to $35million for EBITDA.
• Added 660,000 net subscribers last year
• Shifting from one time acquisition payments to residual fees
• CEO owns about 30%?  Goldman Sachs is second largest holder, TCV has exited their stake.
• 6,000 private branded stores (for AOL, MSN, Yahoo,) and for manufacturers.
• 80% of consumers research wireless service online while only 7% buy it online.
• They represented 40% of online phone sales. Amazon is second largest and they now have a partnership.
• 52% of their sales are from their own WireFly.com (expedia of Wireless).  This is their lowest cost of acquisition.
• Marketing cost is 28% of revenue
• They spent $100 million in marketing last year. (most if not all is online)
• They are expanding product offerings suh as accessories, device protection plans, mobile content, family plans, pre paid, travel related benefits. 
• They have 7.5 to 8.0 million customers (prospects?) in their database.  They are looking at direct marketing (third party offers) as a new source of revenue.
• They save time and money for customers who would ordinarily shop in the store.
• They generated $2,000 for mobile carrier over four years for $340 marketing costs.  ($60 per month from avg subscriber)
• They work with 9 carrier system, there are 400 handset skus and 1,000 carrier rate plans, 6,000 marketing partners, and 44,000 zip codes resulting in billions of combinations.
• They had a customer service melt down in Q4 2005.  Rebates not granted and other major problems.  Now at 80% customer satisfaction.
• 3 to 5% of their traffic is from SEO.  They had to re-build Wirefly to be more SEO friendly.  Big focus in this area.
• They bid on 5,000 key words.

Bankrate

• Did not go to there presentation, but a few interesting tid bits from the slides that I saw.
• $100mm proj for 2007/$40mm profits
• 73% of their traffic is “organic” from SEO and partnerships, 10% is paid search, 17% from 75 co-brand partners such as Yahoo, AOL, Forbes.  (shows the long term small potential of co-brands with portals)
• 487 million page views last year generated $64 million in revenue.  I think that works out to a .12 cents per page view of a $123CPM which is very, very good.   Shows the value of highly targeted inventory in a lucrative category.

The Street.com

• I had to leave early, but a few nuggets.
• $50mm/$12mm EBITDA
• 61% of revenue is subscription, 33% ads and 6% syndication revenue
• Pushing toward 45% ads in a few years
• Average subscriber spends $300 per year!
• Their subscription writers are “in the money flow” meaning they are practitioners