Micro Cap Research Report
Initiation of Coverage – Corporate Profile
February 2nd, 2000
Hotyellow98.Com
| HotYellow98.Com, Inc. | Ticker Symbol | HOTY |
| 2727 Broadway Street, Suite # 3 | Shares Outstanding | 22,241,840 |
| Buffalo, New York 14227 | Estimated Public Float | 1,521,840 |
| 716-895-8018 | Recent Price | $1.00/share. |
| www.hotyellow98.com | Market Capitalization | $22.2 million |
With this report we are initiating research coverage of HotYellow98.Com, Inc. This company operates an Internet Community with promising prospects. While smaller in size than many of its competitors, we are impressed with the profitability of the company. We believe this demonstrates superior management and a solid business plan. The company recently became publicly traded and we are looking forward to numerous positive business developments over the next two quarters that will give us an opportunity to update our current report. In short we believe that HotYellow98.Com demonstrates a ground floor opportunity with promising potential.
The Company offers a turn-key package to individuals and businesses who wish a presence on the worldwide web. Through the Company’s web site, www.HotYellow98.com, visitors are able to create their own personal, lifetime web sites without charge. In addition by agreeing to become web masters a visitor can give-away an unlimited number of free web sites to the public at large through the payment of an annual fee of $149.50. The Company believes that web master status is considered desirable since each free web site that is generated by a web master contains a link/banner to his own web site. This approach is considered a meaningful method of obtaining advertisement and increased traffic at a minimal cost. The free web sites come
with an assortment of benefits, such as 24 hour hosting, unlimited E-mail addresses, free file uploading and discounts from local, national and global merchants. In addition, the Company through a series of e-mail communications stresses to free site holders the benefits of converting to web master status.
Those that acquire a free web site can in turn become a second generation web master for the same annual fee described above. Second generation web masters can also offer free web sites each of which, in turn, has a link/banner providing access to his own website. When this happens, the original web master’s link/banner is removed. However, in such an event the original web master obtains a 15% commission on the monthly fees paid by the second generation web master directly from the Company. The original web master can also obtain a 10% commission directly from the Company in the event third generation web masters result.
Visitors to the Company’s home page can also obtain a free website without being directly sponsored by a web master. However, in such a case a web master still obtains credit through the Company’s system of automatic rotation. All Company web masters are automatically rotated to the Company’s home page. The web master who is so rotated when the visitor’s website is generated automatically obtains credit for the new website.
The Company believes that the ability of web masters to give-away free sites will be particularly attractive to traditional retail establishments. Once a retailer becomes a web master it can give-away free websites to its entire customer base. Since each free website contains a link to the retailer, the retailer can advertise specials, develop coupon programs and offer discounts as well as generate additional income from those customers who themselves become web masters.
The Company estimates it currently has over 1,700 web masters. Web masters currently reside in the United States, Australia, South Africa, Germany, the Netherlands, France and the U.K.
HotYellow recently implemented the Mayor of the City Program. This program is designed to build a sense of “Community” among the users of the HotYellow system, and provide a source of revenue for HotYellow. With the Mayor of the City Program, each member will provide their address when they sign up for their Free Email and Web Site. When a member logs onto the HotYellow system their Zip Code is used to provide them content related to their region or city. Each Mayor of that city or region will control the advertising content plus the business listings in the City Guides. Each Mayor will earn a commission on all e-commerce items sold. This program should help draw and retain members to the HotYellow system. In addition to this the commission portion of this program should help increase the revenue and profitability of HotYellow.
The Company also generates income through its merchant services program that provides real-time, online purchasing opportunities. It anticipates that it will seek to create future sources of income such as e-commerce for proprietary
products and the products and services offered by web masters, advertising revenues on its home page and search engine and the Company’s discount merchandise card although there can be no assurance that it will be successful in doing so. The Company’s growth in its core business operations has delayed its entry into other lucrative internet applications and services and its ability to increase the content component of its own website.
On July 15, 1999, the Company acquired an 80% interest in NetSurf, Inc., a Toronto, Canada based software and systems developer specializing in internet servicing and solutions. . Prior to its acquisition the Company utilized the services of NetSurf to develop copyrighted software.
Chuck Woolery Agreement
In late January HotYellow signed an agreement with Chuck Woolery, the host of the new game show sensation “Greed” and a host for several other game shows spanning over two decades, including “Wheel of Fortune,” “Love Connection,” and “The Dating Game.” Chuck Woolery and HotYellow98.com have joined together to create a real love connection on the Internet. The personal relationship web site will be based on leading edge technology and will provide high standards of integrity and safety to its users.
The agreement, negotiated through the William Morris Agency Inc., grants HotYellow an exclusive license to develop and operate a personal relationship internet site featuring Chuck Woolery as its Host. The site’s concept was created by Chuck Woolery, who selected HotYellow for implementation
Plans for the Love@2and2.com site include a richer media experience through streaming video and audio applications, chat rooms by both subject and region, relationship experts, dating tips, restaurant suggestions, an online card shop, and links to florists.
HotYellow and its subsidiaries, NetSurf.net and YourNetMatch.com, will be responsible for creating, operating and maintaining the web site, which is expected to launch on Valentine’s Day, Feb. 14, 2000 Warren stated, “Chuck Woolery’s involvement in this web site provides the most recognized personality in bringing people together. HotYellow intends to provide a premier experience, enhancing personal relationships by pioneering new opportunities for members of Love@2and2.com.
Comparables.
The Company has numerous competitors and competition is expected to increase in the future. Several well known internet companies have used the free site giveaway concept and thus are in direct competition to the Company’s operations. The Company believes, however, that no other internet company presently provides a system comparable to the Company’s where website owners can promote and develop their own sites through the give-away of free websites. Among the Company’s competitors are the following.
GeoCities.Com
GeoCities.com began business in 1995 and was one of the first internet companies to give away free websites. Yahoo, one of the internet’s primary search engines, invested heavily in GeoCities.com and such support is expected to continue in the future. GeoCities.com offers a website building program as well as GeoShop, a small business solution allowing subscribers to take their business online with a customized pre built store-front. Enhancements include newsletters, membership updates and other
information. The Company estimates that GeoCities.com has a community of approximately 4 million sites. The Company believes that it is the fifth highest trafficked site on the internet. In January 1999, the GeoCities.Com entered into an agreement with Yahoo! Inc. (“Yahoo!”) whereby the Company will become a wholly owned subsidiary of Yahoo!. Under the terms of the agreement, Yahoo! issued 0.6768 shares of Yahoo! common stock in exchange for each share of GeoCities.Com’s common stock. While exact figures are somewhat difficult to obtain, a reasonable estimate of the value of the merger of GeoCities.Com with Yahoo is around $3 billion dollars. The 10-Q quarterly report filed after the announcement showed GeoCities.Com with annualized revenue of approximately $30 million dollars, and annualized losses of $40 million dollars. This roughly valued GeoCities.Com at 100 times sales!
TheGlobe.Com
TheGlobe.com was founded in 1994 and has received substantial investment capital from former Alamo-Rent-A-Car owner Michael Egan. TheGlobe.com built its community as did GeoCities.com by giving away free websites. Subsequently it recruited content providers to give users a wide array of news, entertainment and other information to provide an interactive site opportunity. Forty percent of theGlobe.com’s visitors are international users. Its primary source of revenue is derived from the sale of advertising with additional revenues generated through e-commerce and the sale of membership subscriptions
for enhanced services. It is traded on the NASDAQ under the Ticker Symbol ‘TGLO’. A recent look at TheGlobe.Com shows the company with trailing 12 month sales of $15 million dollars, trailing 12 month losses of $38 million dollars. TheGlobe.Com is valued at 15 times earnings.
Tripod.com
Tripod.com is a Lycos network site and is owned by USA TV Network. It also was established to build a community through the gifting of free website and the provision of web building tools to allow users to develop their own sites. The Company believes that Tripod.com has 3 million members. Tripod.com also offers domain name registration and hosting as well as a variety of other content to its users. Its main revenues come from a two level membership structure. It provides members with the opportunity to build their own site, have chat room experiences with members and access to discounts and specials on
books, CDs and other merchandise. The Company believes that Tripod.com is one of the top fifteen most popular sites on the internet.
Register.com
Register.com advertises itself as the “first step on the Web.” While it does not give away free websites it competes with the Company by providing web registration and procurement of domain names. As of April 18, 1999 the Company
believes register.com had registered 482,053 domain names.
Siteamerica.com
Siteamerica.com also offers web hosting and e-commerce services. Its services are priced from $25 per month for web hosting services to $299 per month for its advertised site developer. Rather than focusing on their own internet applications Siteamerica.com has been developed to provider such services for its own customers.
Looking to the Future.
While relatively new as a publicly traded company we believe the shares of HotYellow98.Com, Inc. provide an interesting opportunity. We are anxiously looking forward to their next quarterly report that will provide additional insight into their business, and allow us to produce a follow up report.
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