In a word, Internet.
The Boca Raton company launched an online entertainment store, bige.com, last November and, a week later, announced it's leaving traditional retailing to focus on e-commerce. Since then, Big has churned out gobs of e-news, including a deal to buy newspaper giant Times Mirror's movie news Web site, hollywood.com, for $31 million in stock. The e-nouncements got a wild reception on Wall Street: On bige.com's opening day, the stock soared 70%. With more and more consumers using the Net, and more and more investors buying Internet stocks, it's not surprising that a number of Florida companies have caught the bug. Here's a sample:
-- "The Publishing Company of North America Inc. Announces Plans for Internet Legal Portal." This announcement from the Lake Helen-based membership directories publisher drove the stock up 775% that day -- before closing up a mere 262% at $3.63.
-- Shares of Miami retailer Sunglass Hut spiked as high as $11.75, a 59% gain, on 15 times normal trading volume after the company disclosed its acquisition of two Internet outfits and its plans to expand online sales.
-- After announcing the Internet was bringing in 4,500 new members a month, stock in Audio Book Club zoomed from $3.88 to $20.88 before settling to $11.08.
-- A January press release about "global Internet fragrance retailing," sent Perfumania's stock soaring. Shares that just three months earlier were trading below $1 were being quoted as high as $10.63.
Now's probably a good time to point out that none of the above-mentioned companies, with the exception of Sunglass Hut, is profitable, and a fancy Internet site certainly won't change that anytime soon. Not that profits matter in this Internet gold rush.
Mitchell Rubenstein, cofounder and CEO of Big Entertainment, makes the case that profits shouldn't matter, at least right now. He compares an Internet commerce site to a cable network, which in the industry's early days lost money for years before building an audience that advertisers would pay for. "The same thing will happen with Web sites; those that have a lot of traffic and interesting users will get large advertising dollars," Rubenstein says. By the way, Rubenstein knows a little bit about the cable business: He and his wife, Laurie Silvers, founded the Sci-Fi Channel and sold it in 1992 to USA Networks.
Rubenstein bets that Big's online relationships with the likes of usatoday.com, one of the most visited Internet sites, and search engine Excite will give Big's sites the visibility they need to grow audience and sales. The acquisition of hollywood.com gives Rubenstein a brand name he thinks he can build on to create a worldwide entertainment resource. It's a pretty huge bet: Rubenstein and Silvers own more than 2 million BIGE shares, more than 26% of the company. They're optimistic. "We've always felt the shares were undervalued," Rubenstein says.
Tel-Com Wireless Cable TV Corp. of North Miami Beach was a no-name, no-profits owner of two wireless cable systems in Costa Rica and Wisconsin not long ago. These days it fancies itself an emerging Internet company, due to its new Net shopping site: 5thAvenueChannel.com. The site, which aims to sell luxury items to Internet surfers, snagged Ivana Trump as celebrity spokeswoman and part-owner.
Tel-Com Wireless the cable company traded for about $2 a share. Tel-Com Wireless the Internet company? TCTV shares in December traded anywhere from $5 to $25. All this for a company that lost $1.7 million on just over $1 million in revenues for the first nine months of '98.
The euphoria was short-lived. 5thAvenueChannel.com blew the date for its December debut by a week, and Barron's published three unflattering articles about the company's ties to, as Barron's put it, "convicted stock manipulators, shameless promoters and brokers who have been banned from the securities business." Juicier charges reported by Barron's involved Russian organized crime figures.
All the bad publicity hasn't dented investor enthusiasm for Tel-Com stock. Although it's well off its December high, the recent $10 share price still awards Tel-Com a pretty premium for its Internet business. Next move: The company is changing its name to 5th Avenue Channel Corp.
Sportsline USA founder Michael Levy, an engineer and avid sports fan, wasn't satisfied with the sports coverage on his favorite online service, America Online. So in 1993 the Fort Lauderdale executive decided to start his own Internet sports news site. The result, SportsLine USA, is Florida's own pure play on the Internet, the closest thing to Net superstars such as Amazon.com and ebay that the state has.
And like those Internet giants, SportsLine has the big-name investors -- including CBS, Reuters and hip venture capital firm Kleiner Perkins Caulfield & Byers -- and the glitzy promotional deals. For example, the company hosts Michael Jordan's personal Web site, and SportsLine just announced a partnership with Internet retailer Amazon to launch a new store on SportsLine's Web site that will highlight sports merchandise. Also like Amazon and eBay, SportsLine loses buckets of money: For 1998, the company lost $35.5 million and, since its inception, $80 million.
What investors want now in an Internet site, though, is growth in revenues and visitors, and SportsLine has demonstrated that. In the first nine months of '98, revenues tripled over last year, and the company recently said it expected fourth quarter revenues to come in 150% over the previous year. (The company makes money from advertising, online shopping, memberships, premium services and content licensing.) As for users, SportsLine reported an 86% increase in Web traffic in the fourth quarter; the gains would have been greater had it not been for the NBA lockout.
To see how important revenue growth is to Internet investors, check out SportsLine's stock chart. In October, when third quarter advertising revenues were less than expected, shares plunged 53% in one day. And SportsLine stock already had suffered a steep summer decline. But, in true Internet fashion, SPLN is now back in the 30s, regaining 40% of its value in one early January day when it reported positive fourth-quarter results. BancBoston Robertson Stephens Internet analyst Keith Benjamin, a long-time Sportsline bull, says the company is "one of the most attractive Internet stocks."
Making Millionaires
Who says dreams don't come true? Ina Blum was running a driving school and raising two daughters. She was making ends meet, but without much breathing room. "I figured I'd be a working slob all my life," she says. Then she met Ed Iacobucci. Their kids played softball together. Back then, around 1989, Iacobucci headed up a team working on the OS/2 operating software for IBM in Boca Raton. But he had bigger plans: founding a new company called Citrix Systems.
Iacobucci was looking for an office manager, according to Blum. "He said, 'You know, engineers are a strange lot. They need someone to keep them together and take care of them.' I said, 'Uh oh.' I had never been tied down to an office job. I'd never even turned a computer on." Plus, the job's starting salary -- $22,000 -- was nearly a 50% pay cut for Blum, and there weren't many benefits. But there were stock options.
You've probably guessed the end of the story. Citrix designs systems software that lets all kinds of computers run applications off a central server. After six years of barely surviving on venture capital dollars, the Fort Lauderdale company went public in 1995. Its stock has jumped more than 1,800% since the IPO, making Citrix a Wall Street darling -- and Blum a millionaire. "It's changed my life," she says. "I'm not a really material person. I have the same pair of shoes from three years ago. But I don't worry about anything anymore." Blum, 50, looks forward to retiring a multimillionaire.
Hers may sound like a Cinderella story, but Blum actually has lots of company. Iacobucci estimates that more than 200 Citrix employees are millionaires by virtue of stock options. Iacobucci, who himself owns stock worth $27 million and holds options on another 139,374 shares, is a big believer in sharing the wealth. Every full-time Citrix employee (U.S.-based) receives options. The number depends on the employee's grade level, and the options typically vest over four years. Citrix also sells stock to employees at a discount. The idea is to retain employees and boost performance.
The danger, of course, is that employees become too focused on the stock price and not enough on getting the job done, which is why Iacobucci insists that the stock price not be posted in Citrix offices. "I hassle people on occasion. 'Forget about it,'" he says he tells them. But, naturally, they don't forget. In February 1997, when a crucial licensing agreement with Microsoft Corp. was on shaky ground, Citrix stock plunged from $46.50 to $9.75. Most employees' options became worthless. "The first day we felt like somebody died," Blum says. She swears the feeling didn't last long. "Then we said, 'OK, let's get back to work.'" Recently CTXS shares traded around $92. Forget about it.