Despite Good News,
The Messenger Has Been Shot

We feel that mail.com is trading below its value. Currently close to $1, our model says that MAIL is worth $6.30. The company will raise approximately $100 million from selling non-core assets, and cash & marketable securities could provide another $65.2 million.

See the calculations of the analysts at rationalinvesting.com in an MS Excel file here or here.

by Manish Aurora
of rationalinvesting.com

Mail.com (NASDAQ: MAIL) is a messaging service provider, delivering a suite of e-mail and complementary services to businesses and end users. The Company provides scalable messaging solutions supported by 24/7 system monitoring and customer service.

Services include hosted Microsoft Exchange, Novell GroupWise, and Web/POP3-based e-mail and collaboration services; hosted e-mail firewall services such as virus scanning, spam blocking and content filtering; and Web-based, desktop and production Internet fax solutions.

On the basis of demographic data provided by consumers when they register, Mail.com enables marketers and their agencies to reach precisely targeted market segments. In addition to brand advertising via banners, buttons and pop-ups, marketers can tap into permission-based email lists, which provides an opportunity to reach consumers who "opt-in" to receive mailings in the product categories that interest them most. Mail.com has over 10,000 customers including 100 of the Fortune 500, websites such as NBCi, CBS SportsLine and CNET; and several ISPs, such as EarthLink, Juno, Prodigy, and Verizon. Mail.com owns one of the top five online ad networks as rated by Media Metrix, as well as an Asian venture portfolio.

For the 3 months ended 9/30/00, revenues totaled $18.5 million, up from $3.4 million in the year ago quarter. Revenues reflect increased business messaging revenue and growth in the number of e-mailboxes and corresponding page views. As of September 30, 2000, the company had $11.9 million of cash and cash equivalents and $53.3 million of marketable securities. Operating margins improved by 41% between the second and the third quarters of 2000, although at 11%, they still have a way to go and need to stabilize at over 50%.

Mail is the bread and butter of the Internet
Mail.com's stock has suffered like any other firm's. However, it fits the category of 'infrastructure', i.e. an area that is still receiving VC funding because of its low risk. It is so basic a service that the idea of obsolescence is nonsense. Additionally, the company is now selling investments such as its ad network, Asian internet ventures, as well as a set of domain names, to raise cash to consolidate the core business.

Somehow, this announcement has not helped the stock. We feel that the stock is trading below its fair value. Our model says that MAIL is worth $6.30. This is despite the Beta of 2 and terminal growth of 5.7%. The company will raise approximately $100 million from selling non-core assets, and cash & marketable securities account for another $65.2 million.

Looking at its current cash burn rate, this money should help it last until it turns profitable in 2002 (assuming it generates $200 million in revenues in 2001), at which point growth (combined with a lower Beta) may lead to a $10 stock. If the firm does not meet revenue projections, it will probably be sold.

—End