LT Lawrence & Co. Issues Report on Aim Smart
Corporation
BW)(LT-LAWRENCE/AIM-SMART)(AIMS) LT Lawrence & Co. Issues Report on
Aim Smart Corporation
Business Editors
NEW YORK--(BUSINESS WIRE)--June 2, 1998--
AIM SMART CORPORATION (OTC:AIMS)
Initiating Strong Buy -- Growth May Accelerate
Short-Term Rating: BUY
Long-Term Rating: STRONG BUY
Price Objective -- $12 - $15 per share
Price: $8.00
52-Week Price Range $4.75 - $14.00
Shares Outstanding (MM) 27 MM
Shares in the Float 858,000
Market Capitalization (MM) $216 MM
Long Term Debt (3/31/98) none
Book Value Per Share (3/31/98) n/a
Dividend Per Share none
Average Daily Volume 50,000
Insiders Holding 67%
Institutional Ownership 0.36%
Next Earnings Expected 8/15/98
Year Revenue Revenue Gross Operating Net Income EPS P/E EPS
(Mar.) (MM) Growth Margin Margin (MM) Growth
2002E $462.0 43% 65% 45% $54.14 $2.00 20 43%
2001E $323.4 133% 62% 42% $37.90 $1.40 22 133%
2000E $138.6 131% 60% 40% $16.24 $.60 42 131%
1999E $60.00 333% 58% 38% $7.03 $.26 77 420%
1998E $13.86 6500% 56% 36% $1.39 $.05 300 n/a
1997E $.210 n/a 24% n/a ($2.6) ($.10) n/a n/a
Investment Highlights
-- Partnership with Microsoft has re-designed Internet Explorer 4.0
into The Smart Shopper Explorer and provides free Internet access
to the millions of households within a 5 mile radius of 300+
shopping malls.
-- Joint venture with Simon Brand Ventures, a division of The
DeBartolo Group, providing The Smart Shopper Explorer / Smart
Pavilion service to 240+ malls, 32 million households, and an
eventual 100 million shoppers nationwide. 1 mall has been
installed and the rollout is in progress.
-- Joint venture with The Rouse Company providing The Smart Shopper
Explorer / Smart Pavilion service to 59 malls. 8 malls have been
installed and the rollout is in progress.
-- Joint venture with Wells Park to provide Smart Shopper Explorer to
30 malls.
-- Strategic relationship with major provider of Internet
connectivity hardware solutions.
-- Contract with WPP Group, the largest advertising and marketing
company in the world.
Fundamental Highlights
-- AIM Smart completing $4 - $5 million private placement offering
-- Internet companies receiving high valuations based upon projected
earnings
-- Hardware provider subsidizing rollout of kiosks
ADDITIONAL INFORMATION IS AVAILABLE ON REQUEST. Copyright (C) 1998
by LT Lawrence & Co., Inc. All rights reserved. The information set
forth herein was obtained from sources which we believe reliable, but
we do not guarantee its accuracy or completeness. Neither the
information, nor any opinion expressed, constitutes a solicitation by
us for the purchase or sale of any securities. LT Lawrence & Co., Inc.
and/or individual officers and/or employees and/or members of their
families may have a position in the securities mentioned and may make
purchases or sales of these securities from time to time in the open
market.
Company Description
AIM Smart Corporation is a Microsoft Solution Provider and has
developed the state-of-the-art interactive electronic marketing system
called "The Smart Shopper Explorer." The Smart Shopper Explorer
service is a joint venture with Microsoft's Internet Explorer 4.0 and
allows users to surf the Internet free of charge using local shopping
malls as their Internet Service Provider (ISP).
Combined with the Smart Shopper Explorer is AIM Smart's "Smart
Pavilion", an advanced multimedia kiosk based in shopping malls around
the country. The system turns regional malls into Cybermalls. Shoppers
are advised of special sales, promotions, entertainment and product
offerings. Each Pavilion sits in the center court of a mall displaying
4 sides of touch screen displays and television monitors. Shoppers can
find directions to stores, coupons, play games, enter contests, read
horoscope, view online catalogs and much more at the touch of a
button. Specialized commercials are played during each stop to the
Pavilion indentifying which stores offer specific products.
For those who wish to shop from home, the Smart Shopper Explorer
provides free access to the mall and Internet. Mall stores can
continuously update their sales, promotions and special offerings and
can immediately notify their customers in the local community. This
streamlines the entire advertising process and allows each store to
interact with its customers electronically. The computer interface
looks and acts just like a television. Advertisements stream across
the computer screen while shoppers are browsing stores or going to
their favorite places on the Internet. Customers can purchase products
using a variety of payment methods and have the product delivered
directly to their home or office in as little as one hour. Ease of use
and simple installation makes the Smart Pavilion / Smart Shopper
Explorer service an industry breakthrough.
Price Objective $12 - $15
We have continued our coverage of AIM Smart Corp. with a BUY
rating. Our 6 month price target of $15 per share is 88% above current
levels. Our 12 month price target is $20. The new service capabilities
and expanded reach of the Smart Shopper Explorer / Smart Pavilion
combination should prove instrumental in boosting the company's
revenues and earnings growth rate.
Strong Competitive Advantage in the "E-tailing" Industry
There are approximately 600 dominant shopping malls in the US.
With DeBartolo Group, Rouse and Wells Park being the top mall owners
in the US, AIM Smart is cornering the market on Cybermalls. While
there is competition in the kiosk industry, there are no companies
offering a fully integrated shopping / advertising / merchandising
network like the Smart Shopper Explorer / Smart Pavilion service. Many
E-tail companies are strictly web-based with one or two potential
revenue streams. AIM Smart has a diverse revenue structure that is not
dependent on the success of any one line of business. The shopping
mall business paradigm lends itself to this unique revenue structure
that includes the following:
SMART SHOPPER EXPLORER / SMART PAVILION REVENUE STREAMS
-- Mall owner / store owner contracts with AIM Smart to provide
in-mall interactive directory and home shopping service. Contract
is written as part of the store owner's lease with the mall owner.
The two enter into a co-op advertising arrangement which provides
AIM Smart with a monthly revenue stream from each store within the
mall.
-- Each store receives a service package which includes a listing on
the kiosk and a webpage on the home shopping service. The store
may purchase premium packages which may include kiosk
infomercials, coupon printing, digital catalogs, kiosk print
advertising, email features, special promotions
-- AIM Smart receives 7 - 10% of gross sales from electronic commerce
between stores and shoppers.
-- The Smart Shopper Network offers advertising spots to in-mall
stores, local and national advertisers.
How Does it Work?
The Smart Pavilion / Smart Shopper Explorer Service is physically
installed in the center court of each shopping mall. AIM Smart
employees meet with each store owner and design an online presence
including digital pictures, prices, special coupons, advertisements,
commercials etc. Approximately 100 stores per mall participate in the
program. When shoppers enter the mall they are greeted by the Smart
Pavilion. A Smart Pavilion representative guides shoppers to the kiosk
and introduces its many features. Shoppers can browse the interactive
mall directory, receive coupons, play games, read horoscopes etc. Then
the representative offers the shopper a free Smart Shopper Explorer
4.0 CD-Rom and tells the shopper to load it onto their computer when
they get home. The shopper may continue to browse the mall, visit
stores and possibly purchase items from a store. Whenever a shopper
buys goods or services from a store, the store clerk asks the shopper
for their email address and whether or not the shopper is on the Smart
Shopper Explorer home shopping service. If not, the store clerk will
provide a free CD-Rom to the shopper. If so, the store clerk will book
the customer's order and note the customer's email address. This data
becomes very important as the store will then have an electronic
connection to each of its shoppers. The shopper goes home, loads the
Smart Shopper Explorer onto the computer, and the rest is history.
Overview -- The Internet Retail Electronic Commerce Industry
International Data Corp. estimates the total number of web users
will grow from 28 million in 1996 to 175 million by 2001. IDC also
estimates the dollar amount of transactions over the Internet will
increase from $2.6 billion in 1996 to $220 billion by 2001. There is
no doubt that the Internet has emerged as the next communications
medium complementing radio, television and cable. There are several
companies competing in the electronic retail industry ("E-tail").
These include Cendant, Amazon.com, Barnes & Noble, N2K, CDNow, Onsale,
Cybershop, etc. While sales have been focused on books, music, finance
and travel, more products and services are coming online daily. The
key to "E-tail" can be broken into 9 categories:
KEY CRITERIA TO SUCCESS IN INTERNET E-TAIL INDUSTRY
Opportunity: the Internet is growing 5 times faster than radio,
television and cable's early growth years.
Brand: AIM Smart is the leading provider of free Internet and home
shopping to shopping malls.
Cost Structure: For every dollar spent on free Internet, $25 in
advertising revenues will be generated.
Information Database: WPP contract gives AIM Smart access to largest
consumer database in the world.
Fulfillment & Distribution: AIM Smart has no inventory. Local stores
house and distribute products.
Cutting Edge Technology: Microsoft Solution Provider for 11 years puts
AIMS on top of technology.
Sense of Community: Local shopping mall structure enhances
neighborhood feel of Smart Shopper.
Ease of Use: Microsoft Plug-n-Play technology makes Smart Shopper
simple to install and use.
Speedy Delivery: Products delivered within 1 hour to customers living
in 5 mile radius of mall.
Revenues
AIM Smart has approximately 325 malls under contract with 194
malls earmarked for immediate rollout. The Company has been installing
malls at a rate of 1 per week and is ramping up to 2 per week. There
are 9 malls in operation with 4 additional malls in production. The
main fee-for-service product is the IH-9 package which bills $300 per
month per store and provides a video catalog and Internet presence.
Premium packages are priced upwards of $1000 per month. Advertising
revenues consist of print advertising on the outside of the kiosk,
video advertisements in the Smart Shopper Explorer home service,
infomercials on kiosk screens, coupons, special promotions, banner
advertising, email campaigns etc. Electronic commerce revenues consist
of AIM Smart receiving 7 - 10% of gross sales of products and services
over the Smart Shopper network.
Current revenues are at $30,000 per month per mall and are
expected to ramp up to $64,000 per month per mall over the next 6
months. Our 1998 projection of $13.86 million in revenues is derived
from a mean number of 18 malls fully operational for 12 months. Each
mall will have approximately $770,000 in revenues for the 12 month
period.
Looking to 1999, we expect the Company to be installing 10 malls
per month and have an average of 78 malls up and running for the full
12 month period. We have capped our $64,000 per month per mall revenue
projection at this time and will adjust it as the business model
progresses. We have also capped our kiosk deployment projection at 10
malls per month out to 2002. This will get AIM Smart to approximately
600 malls fully operational, which is our projected critical mass for
the Smart Shopper Explorer service.
Earnings Outlook
We project AIM Smart to be profitable in its second full year of
operation. 1997 showed a loss of $2.6 million with nearly all of the
loss attributed to accrued research and development expenses. 1998
will be the first year of profitability as the Company's revenues
increase from $210,000 to $13.86 million and margins begin to
increase. With 27 million shares outstanding we believe the Company
will earn $.05 for 1998 and $.26 for 1999.
Valuation
1998 has proven that Internet companies need revenues, not
earnings, to receive strong valuations from Wall Street. EPS are out
the window and price/sales ratios are in. With the field spanning from
5 - 50, many price/sales ratios are landing between 15 - 20. With
$13.86 million in projected 1998 revenues, AIMS has a projected market
cap between $208 million and $277 million. With 27 million shares
outstanding we see a price range of $7.75 and $10.25. Looking to 1999,
with $60 million in revenues AIM Smart should have a market cap
between $800 million and $1.2 billion. The price is projected to
exceed $30 per share if these price/sales valuations continue.
Highlights
AIM Smart has 50% of top shopping malls in exclusive contracts --
Between Simon DeBartolo Group, Rouse and Wells Park, AIM Smart has
created a strong barrier to entry for competition in the shopping mall
/ Internet Retail industry. AIM Smart is aggressively pursuing the 600
top shopping malls and currently has contracts with 325 of them.
Company well positioned to capitalize on rapidly growing trend --
According to a report conducted by Coopers & Lybrand, Internet
advertising revenues continued their strong upward trend reaching
nearly $1 Billion in 1997. "The industry saw continued spectacular
growth ....placing the medium within the ranks of traditional media
for the first time," states Rich LeFurgy, Senior VP ABC News/ESPN
Internet Ventures. "We are witnessing the evolution of the Internet
into a vitally important consumer advertising medium, with increased
online spending and consumer usage, underscoring its value to
advertisers," added Tom Hyland, Chairman, Coopers & Lybrand New Media.
Internet E-tail drawing from the best of both worlds -- Internet
Retail has become an entirely new industry drawing from the best of
two worlds. Advertising and marketing on the Internet have exploded as
highly efficient modes of customer attraction and retention. Coupled
with the supply and distribution model of the retail industry, E-tail
companies are able to deliver goods and services once the customer is
in the door. Repeat purchases per customer are higher in E-tail than
most other models.
50% of Internet users accessing local content -- over 24 million
Internet users are surfing the web for local information, news and
other content. AIM Smart is leveraging this need for local content by
building 600 local communities with each shopping mall being at the
center of the community. This trend is driving local advertisers to
the Smart Shopper Network. This means that the appeal of the Smart
Shopper service extends to both national and local advertisers.
Free Internet expected to bring 5 million users to Smart Shopper
Network -- If you build it, they will come. We've been talking about
free Internet for 3 years. The time is now and advertising and
electronic commerce are paying the bill. America Online has proven
that having a controlled dedicated viewing audience is crucial to
driving advertising. AOL is up to nearly $300 million in annual
advertising revenues alone. AIM Smart expects to have about 1/3 the
viewership of AOL and will aggressively pursue a similar advertising
revenue structure.
Cutting-edge proprietary systems -- AIM Smart has its team of
Microsoft certified developers constantly programming and creating
innovative solutions for both the retail and Internet industries.
Competition is fragmented -- With less than 20 true players in the
E-tail business, AIM Smart is competing against companies selling a
limited variety of products or representing a small number of
manufacturers and retailers. While one leader offers products from 300
- 400 suppliers, AIM Smart is building a network of 30,000 - 60,000
suppliers. This unparalleled selection and market share should be a
strong backbone to AIM Smart's growth strategy.
Barriers to quality competition -- The Smart Pavilion / Smart
Shopper Explorer has been recognized by Microsoft at the National
Retail Federation conference as the "best of breed" technology in two
separate categories. With exclusive contracts already signed with 3
top mall owners and over 50% of the nation's top shopping malls, there
is little opportunity for competitors to take market share from AIM
Smart. In addition, the Company has spent many years developing the
software / hardware platform which has a price tag of over $10 million
in raw development cost. It is easier to partner with AIM Smart than
it is to compete against the Company.
Management has significant inside ownership -- The two founding
senior managers collectively own approximately 67% of the shares
outstanding. Additional insiders own another 10% leaving 23% to
outside ownership. Management is highly capable of running a publicly
traded company as referenced herein:
-- Robert Van Duren (age 42) President and Chief Executive Officer is
principally employed as the President and CEO of AIM Smart
Corporation and WinPoint Retail Consulting. Mr. Van Duren has 16
years experience as an officer, director and manager of various
public and private companies. He was formerly president of
LifeSoft Corporation as well as a real estate development company.
He also spent several years as a financial and management
consultant to rapidly growing small business. Mr. Van Duren has a
Bachelor's degree in Economics and a Masters Degree in
Administration from Central Michigan University.
-- Garry Eberhardt (age 42) Chief Operating Officer and Executive
Vice President of Operations for AIM Smart and WinPoint Retail
Consulting. Mr. Eberhardt is the corporate visionary and technical
expert. He is chiefly responsible for new product development and
product rollout. Garry has been involved in the development and
design of software products since 1978. He was formerly president
of LifeWare Systems Designer Team, Inc., a company involved in the
sales of transaction-based, backoffice solutions for the stock
brokerage industry. He attended the University of Lund in Sweden
where he received an education equivalent to a Masters degree in
Business Administration and a Masters degree in Computer Science.
-- George Winslow -- President of The Winslow Group Consultants has
been retained by the Company to provide new business development
and sales staff development services to AIM Smart. George Winslow,
formerly Vice President/Director of New Business Development for
Turner Broadcast Systems, Inc, began his media sales career in the
broadcast industry in 1959. At Turner Broadcasting, Winslow
pioneered innovative marketing concepts, secured millions in
incremental sales and focused in large part on national and
regional retailers.
-- Peter Gaskins -- Owner of Clarion and Associates. Peter was an
Institutional Investor All Star Analyst in the 1970's with Paine
Webber, a money manager in the early 1980's, co-founder and CEO of
NatWest Securities in the late 1980's and a venture investor
consultant in the 1990's. Peter advises AIM Smart on investment
banking and strategic planning issues.
Risk Factors
The Company's strategy is to continue its internal growth and, as
strategic opportunities arise, to consider acquisitions of, or
relationships with, other companies in related lines of business. As a
result, the Company is subject to certain growth-related risks,
including the risk that it will be unable to retain personnel or
acquire other resources necessary to service such growth adequately.
Expenses arising from the Company's efforts to increase its market
penetration may have a negative impact on operating results. In
addition, there can be no assurance that any suitable opportunities
for strategic acquisitions or relationships will arise, or if they do,
that the transactions contemplated thereby could be completed. IF such
a transaction does occur, there can be no assurance that the Company
will be able to integrate effectively any acquired businesses into the
Company. In addition, any such transactions would be subject to
various risks associated with the acquisition of businesses, including
the financial impact of expenses associated with the integration of
businesses. There can be no assurance that any future acquisition or
strategic relationship will not have an adverse impact on the
Company's business, financial condition or results of operations. As
suitable opportunities arise, the Company anticipates that it would
finance such transactions, as well as internal growth, through working
capital or in certain instances, through debt or equity financing.
There can be no assurance however, that such debt or equity financing
would be available to the Company on acceptable terms when and if
suitable strategic opportunities arise.
Summary
We have continued coverage of AIM Smart Corporation with a BUY
rating. AIM Smart has quickly become the leading Internet Retailer
associated with shopping malls and their affiliated stores. Through
contractual agreements with Simon DeBartolo Group, Rouse, Wells Park,
WPP and a strong relationship with Microsoft, AIM Smart is
aggressively executing its contracts to immediately rollout 194 - 325
shopping malls with a target of 600 malls by 2002.
AIM Smart is effectively leveraging new technologies and older
proven marketing methods to bring home shopping and 1 hour product
delivery to the masses. Parallel to the direct marketing, mail order
catalog and infomercial industries, AIM Smart expects strong growth
over the next 5 - 10 years as America's love affair with computers and
the Internet grows stronger and stronger.
In our opinion, AIM Smart has a 5 year window to aggressively
complete their 600 mall home shopping network. This will bring nearly
60,000 retail stores to desktops across the United States and enable
households to shop from home, receive their products in 1 hour or
less, videoconference, browse the Internet free of charge etc. With 5
million users on the Smart Shopper Network, AIM Smart will have
created a niche in the Internet market that should lead to a highly
profitable interactive merchandising and advertising network.
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