Packers net huge return in listing Internet company

By Giles Parkinson
Sydney Veiw

Investors value ecorp at a staggering $A1.5 billion.

Someone suggested during the past week that Kerry Packer might have been disappointed at making a mere $A300 million ($370 million) profit after the first day of trading in his Internet spinoff, ecorp.

I don't think so. The pundits might have got it wrong in predicting that the stock would more than treble in value on its first day on the Australian Stock Exchange, but Mr Packer and son James got this one just about right.

Ecorp is just a few years old, and the Packers and their listed company, Publishing and Broadcasting, have injected just $30 million before its float.

No one knows what the Packers' estimate of its real value was just six months ago, but they might have been surprised to learn the market put a value of more than $1.5 billion on it within three days of listing.

And even if ecorp did come in lower than the most wildly optimistic projections, it still managed to hit the ASX's top 100 chart with a bullet, debuting at number 68 at the end of its first week.

Clues as to how much further it will climb can be found at the bottom of a teapot, but the hypesters have given it every chance of success.

Although it boasted revenue of just $A33.5 million last year and registered a $A20 million pre-tax loss, ecorp has somehow managed to earn itself the moniker of the blue chip of Australia's Net stocks.

It has also been branded as Australia's "first major pure Internet play", which is stretching the truth to the point of nonsense.

Ecorp is actually made up of four separate businesses.

The best known is ninemsn, a joint venture with Microsoft that earns money from selling adverts on Internet sites it manages; eBay A&NZ, a venture with eBay that offers person-to-person trading on the Net; a share-trading firm called Online Broker; and Australia and New Zealand's biggest automated ticketing company, Ticketek, which accounts for 90 per cent of ecorp's revenue and does hardly any business on the Net.

The sale of Ticketek by the Packers' private company Consolidated Press Holdings into ecorp was a stroke of genius.

The "throw your straw hat into the wind and see where it lands" technique used by investors to value Net stocks roughly equates to about 50 times earnings. It is a technique that counts on a lot of growth.

Before the sale of Ticketek, most analysts valued ecorp at about $500 million, based on estimates of ninemsn's revenue.

Suddenly, with the addition of Ticketek and a promise to vigorously pursue Internet ticket sales, the company is worth $A1.5 billion.

Perhaps the Packers should have been more audacious: on these multiples they could have bought David Jones, the department store chain, for $650 million, sold it into ecorp and floated the lot for $A35 billion.

But the Ticketek revenues were enough to make ecorp the biggest Net stock on the ASX and that, presumably, must make it the blue chip of the sector, which is not to say that it will turn a profit or even pay a dividend anytime soon.

At number 68, ecorp is nestled cosily between construction giant Leighton Holdings, rural property group Stockland Trust and the New South Wales TAB.

One poor fund manager said last month he was an old-fashioned type who wanted to invest in stocks that earned money and paid dividends.

But ecorp is valued at 50 per cent more than extremely profitable companies such as WA Newspapers and wine group BLR Hardy.

And it is but a drop in the ocean. In the United States, the combined market value of Internet stocks is a staggering $US630 billion.

A good portion of it comes from just one company, the online bookseller Amazon.com.

Amazon stock is trading at a phenomenal price/revenue multiple of 123 times. (If ecorp were valued along the same lines, it would be worth more than Pioneer, Wesfarmer or Carter Holt Harvey.)

The valuation is justified by data that shows Amazon's sales are growing 16 per cent a quarter. If that continues, it could have sales of more than $US50 billion by 2005.

It seems that one needs to have a long-term view in the modern market.

No, Mr Packer would not have been disappointed at all by last week's listing of ecorp.

In fact, if he does not have a grin from ear to ear as you read this, it is probably only because he is eating his breakfast.

He might even be recalling the line he coined after buying back the Nine Network from Alan Bond for a third of the price he had sold it to him.

Mr Packer said then that a person only got one Alan Bond in his life. He doesn't need another one - he has the Internet.