Waiting for NBCi To Catch Fire

It looks like a winning combination: NBC, a powerhouse media brand for decades, and a lower-case "i" - representing all the promise of the interactive future.

But in less than two months since NBCi's public debut, the spinoff's stock price has bucked conventional dot- com wisdom by languishing below its opening price, befuddling the analysts who cover the company and the investors who bought in.

Formed in May through the merger of CNET's Snap.com portal, online direct marketer Xoom.com and NBC's family of Internet properties, NBCi was supposed to be the TV network's foothold on the Internet. NBC, which is owned by General Electric, owns 47.3 percent of NBCi. But with the engagement of AOL and Time Warner, the mission to put a new shine on the fledgling firm has taken on new urgency.

NBCi executives have argued that the AOL-Time Warner deal only validates what NBCi CEO Chris Kitze has proselytized all along: Net companies will rely on the value of traditional brands to reach consumers. So behind the frenzy of AOL Time Warner, NBCi quietly announced deals in Asia and Australia to break into overseas territories. Days later, it announced a planned Goldman Sachs- and Bear Stearns-led secondary offering of 4.6 million shares to raise about $260 million, intended to generate much needed equity for a round of acquisitions and partnerships the firm plans to make in the coming months.

And last week, parent NBC snapped up an undisclosed minority stake - part equity and part on-air promotion - in online gift currency company Flooz.com.

As part of the deal, Flooz will get premier positioning on the Snap.com gift certificate section.

The foreign deals make immediate sense. NBCi purchased a 35 percent stake in Asiacontent.com to develop and launch portals and shopping services for Pacific Rim countries including Korea, Hong Kong, Singapore, Malaysia and Taiwan in the coming months. The company holds an option to raise the stake to 60 percent.

Separately, it announced an alliance with Australia's Seven Network to develop cobranded broadband and online businesses in the region. Financial terms of both deals were not disclosed, but the moves give NBCi important foreign reach in regions where the NBC brand is not well-known, and match it up strongly against AOL Time Warner's overseas lineup.

So for a company that seems to be firing on all cylinders, why haven't investors come flocking? Since the merger's announcement in May and its market debut late last year, the market has been anything but kind to the company, in spite of being a darling of Wall Street analysts. The stock debuted Nov. 30 at $88.50, only to drop over 14 percent by the end of the day. It rallied around $95 in mid-December, but hovered in the low $70s in recent days.

What's behind the sluggishness? The market may be souring on media-driven portal strategies, some industry watchers say, pointing out that competitors - most notably Disney's Internet spinoff, the Go Network - have received similarly lukewarm reactions from Wall Street.

In addition, the initial yawn and eventual drop in stock price of NBCi were mostly due to the run-up in Xoom.com stock in April (it hit a high of $98.50) in the weeks leading up to the May announcement, analysts say.

Analysts attribute the stock's tepid performance simply to persistent interest-rate jitters, leaving it vulnerable to market trends. The secondary offering, moreover, could further dilute demand for the stock already on the market.

Investors also have been confused over what the new business offers. "The company has spent a lot of time in quiet periods," says Catherine Skelly, VP of equity research at Gruntal & Co., a New York-based investment bank. "And management has not been out in front of investors waving the flag." Indeed, the company is now in a quiet period because of the secondary offering, and declined to comment for this article.

Many investors, however, remain confident NBCi will grow into a model of convergence and e-commerce as it finds a way to leverage the broadcast and cable networks and realizes the rewards of a recent $70.5 million investment in Telocity, a broadband ISP. "I think over the next year, we're going to see a lot of revenue-driving in this name," says Skelly. "A lot of brand equity hinges on the power of the Peacock."

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