Can NBCi make Wall Street stop yawning?
It didn't work.
Shares of Xoom (Nasdaq:XMCM) fell after the NBCi deal and haven't come close to their April highs 98 1/2. Now, with the NBCi deal about to close, it's unclear where shares of the NBCi will be headed.
Nevertheless, Xoom shareholders are expected to approve the NBCi combination at a shareholders meeting this Wednesday.
The big drag on the stock comes because investors view NBCi as another old media Internet play, a a la Infoseek (Nasdaq: SEEK) and Disney (NYSE: DIS)'s Go.com (NYSE: GO), officially formed Nov. 17.
Undervalued?
Analysts said the performance of Xoom shares is discouraging, since NBC has been parading its "dotcom" plans around for some time now. Meanwhile, Xoom, which will begin trading under the NBCi name, doesn't seem to be getting much investor attention.
"Investors will be surprised. People really haven't focused on the stock, they don't have any idea of the progress management has made," said Lowell J. Singer, an analyst at Robertson Stephens, a firm that doesn't have underwriting ties to the NBCi deal.
Singer said Wall Street is making a mistake by putting the NBCi deal in the same boat as other Internet-media marriages, such as the Infoseek-Disney-Go.com combination.
"This (NBCi) will be a business that will stand on its own," said Singer, citing the strength of its management team, the relationship with NBC and GE, and the "power of the peacock" brand as assets.
"Of all the e-marketing companies, Xoom is the most undervalued," Singer said. The stock still has a "lot of hidden value," even though shares have gone up from 35 to 59 over the last couple of weeks.
Singer is betting NBCi will be more successful than the Disney-Infoseek venture. Go.com suffered as Disney tried to piece together the Infoseek properties with its own. There have also been concerns that the merger of CBS and Viacom could see the same problems.
Heavy traffic?
Snap.com and Xoom.com first announced plans to be combined under NBC Internet Inc., a unit of General Electric Co. (NYSE: GE) in May. The new company, to be called NBC Internet (NBCi), will use Snap.com as its umbrella brand, and will integrate broadcast, portal, and e-commerce services.
The merger will lump Snap, the 18th most trafficked site in September according to Media Metrix, with Xoom, which was ranked 19th. Factor in the NBC properties, and NBCi is hoping to approach Go.com, which is ranked fifth in terms of reach.
To acquire those gains, analysts said management needs to integrate the NBCi properties, boost traffic for Snap, and use Xoom's direct marketing skills to monetize traffic.
Institutions are just starting to recognize what Xoom and NBCi and Snap will be collectively, said Singer. Though it's hard to say exactly what that is.
In any case, NBCi will lose money -- lots of it. NBCi's unaudited pro forma results would put revenue at $28.1 million for the year ended Dec. 31, 1998 and $33.5 million for the six months ended June 30, 1999. Net loss was $300 million for 1998, and $177 million for the first six months of 1999.
Strong properties
The new entity will combine NBC.com, which has entertainment information and Web spin-offs of popular NBC television programs, as well as chat and bulletin board services; NBC-IN.com, a portal service that provides access to local content via the Web sites of over 100 television stations; and VideoSeeker, which has a selection of on-demand video programming. For good measure, the deal includes a 10 percent equity interest in CNBC.com.
Compared to other network/portal hybrids, NBCi will have the added advantage of Snap, which is an ISP/access company jointly held by GE and CNET Inc. (Nasdaq: CNET). The whole access component to Snap, which is not present in Lycos (Nasdaq: LCOS) or Infoseek, is what makes NBCi different from other network/portals, said Anya Sacharow, an analyst with Jupiter Communications.
"NBC isn't pursuing a portal on the same level as ABC and CBS," Sacharow said. "In terms of its network strategy, it's a different type of play. Whereas Yahoo! (Nasdaq: YHOO) and Go represent an entry point into the Web, NBCi is an aggregate of all the properties within its property. It's amassing what's in the family," she said.
'Hit the ground running'
Officials at Xoom are optimistic, naturally enough.
"NBCi will hit the ground sprinting," said Xoom CFO Jon Harbottle, on a recent call with analysts. Xoom's third quarter results were impressive, but most of the talk was focused on the NBCi merger.
"Because the merger was expected to have closed by now, the wheels of the PR campaign are already turning," Harbottle said. NBCi has $50 million worth of on-air promotion on NBC to tout new features such as a multi-media e-mail service. Consumers will want to "use something sexy and rich," said Harbottle, who said he expects a viral marketing boost from the portal.
ValueVision International's rebranding as Snap TV will also facilitate NBCi's plan to "convert television viewers into online buyers," said Harbottle. Value Vision has also extended Snap's reach via TV into 30 million households. Harbottle said that after completing a branding study, the company has decided to keep the Snap name, minus its "dotcom", and combine it with the NBC logo, in order to leverage "the power of the peacock."
Under the deal, Xoom.com stockholders will receive one share of NBCi stock in exchange for each share of Xoom.com common stock, giving them about 20 million shares, or 38.8 percent of NBCi's outstanding common stock upon the closing of the transactions. NBC's affiliates have the option to own up to 52.6 percent of NBCi.
Robert C. Wright, the president and chief executive officer of NBC, will be the chairman of the board of NBCi, and Chris Kitze, the chairman of Xoom, will be the CEO of NBCi. Edmond Sanctis, former operating chief of Snap.com, has been appointed president and chief operating officer of NBCi.