Are you thinking of investing in lastminute.com? If so, be honest.
Have you concluded it is an excellent company that is going to win
a significant amount of business in its market niche, or are you
just interested in making what will almost certainly be a few
hundred pounds stagging the issue?
It's true that recent dotcom companies have attracted
significant premiums on their stock market debut, and the mania
surrounding lastminute.com promises it will be no exception. But
some day the froth that surrounds the valuations of e-tailers will
be blown away.
Think for a moment about what we are being asked to believe.
According to the grey market (in which financial spread betting
companies guestimate the opening price) lastminute.com's share
price is likely to be between 500p and 525p, a significant premium
to the offer price of 190-230p.
This values the business at approximately £770m, a sizeable
company by anyone's standards - and especially for a company that
lost £6m in the final quarter of 1999.
It would be straightforward enough to compare lastminute.com to
other e-commerce Web sites (amazon.com, for example) and conclude that this
valuation is fair.
You can bet that is what the brokers to the deal will be doing,
coupling it with rosy projections based on the number of
subscribers (inflated as they may be by prospective investors
logging on to register for the share offer) and their projected
spend.
But let's leave aside this fantasy world for a moment and
compare lastminute.com with a company it may see as a competitor -
Thomson Holidays, which coincidentally announced its 1999 results
last week. It accompanied them with an announcement that it would
invest £100m over the next two years in e-commerce, including the
launch of several Web-based holiday services. Now compare the
results in the table and you can see that the valuations are poles
apart.
When you add in the inherent uncertainty that surrounds
e-tailers - what happens if they lose a supplier, or stop spending
on marketing, or a major competitor enters their market? - you
begin to see that a solid business that can justify the market
capitalisation is some way off.
It may be unfair to single out lastminute.com in this way and I
really hope that its founders succeed and go on to build a business
that justifies its valuation. But serious investors must find it
increasingly difficult to swallow these price tags.
The real danger is that when the e-tailers' frothy valuations
are blown away the share price of technology companies will suffer
as well. That would be a shame, since the long-term growth rates of
many IT companies justify their valuations and there is more to
come.
Bricks-and-mortar versus dotcom
| | Thomson
Travel | lastminute.com* |
| Formed | 1965 | 1998 |
| Turnover | £3bn | £0.6m |
| Profit/(loss) | £77m | (£6m) |
| Market
capitalisation | £980m | £770m |
*Lastminute.com's figures are for the last quarter of 1999,
which are the latest available.
Ian Mitchellis
an ITanalyst with stockbroker Beeson Gregory. His opinions should
not be construed as investment advice.