November 15, 2005 - 2:56pm EST by
2005 2006
Price: 0.30 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 70 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT

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Forget about what you remember of Pro forma for a recently completed asset sale, (TGLO) has approximately 230 fully diluted shares, $18mm of cash, no debt and no NOL. This $50 enterprise value company has 2 significant assets that could each be worth more the company’s current enterprise value.

The first asset is Tralliance, which has the exclusive right to operate and administer the .travel domain name. The domain names are actually sold by 3rd parties (i.e. but in exchange for every name sold, TGLO receives approximately $35 per year of pretax income. This pretax figure increases over time as the company finishes paying its earnout. This division has only 4 employees, so SG&A is minimal. Net income is essentially free cash flow as little capex or working capital is required. In order to make the domain name as useful as possible, only those companies operating in the travel industry will be allowed to purchase .travel names. Potential purchasers must either belong to one of many “approved” travel organizations or have other means of verifying their travel business (i.e. have an appropriate Dun & Bradstreet #).

The company is currently in the 2nd (of 3) phase of its ICANN mandated test period during which it tests its systems for signing up names. The first phase went well and the company plans its official launch on January 15, 2006.

The .travel domain will serve a community restricted to businesses, organizations,
associations, and governmental and non-governmental agencies operating in the
sectors of the travel industry represented by the eighteen travel segments set
out below. However, it is anticipated that the number of travel segments will increase, thus allowing for even more purchasers of .travel names. The overall population within these sectors has been estimated to be in excess of 1,000,000 travel providers, purveyors, and associated entities. TTPC, a non-profit corporation owned by the global travel industry through its members as well as research organizations, projects that the effective .travel registrant base, is approximately 500,000 entities. Specifically, the industry segments defined by TTPC and their estimated size are:

Industry Segment/Number of Potential Registrants

Travel agents/100,000
Tour Operators/1,500
Airlines (scheduled and charter)/500
Car Rental Companies/500
Cruise lines/500
Bus/Coach Operators/15,000
Bed & Breakfast Houses/100,000
Passenger Rail Lines/500
Theme Parks/5,000
Convention & Visitor's Bureaus/5,000
National Tourism Offices/200
Travel Guide/Magazine Publishers/500
Camp Facility Operators/100,000
Computer Reservation/Travel Technology Providers/100
Travel-Consumer Research Orgs/100

Total: 1,234,400

We believe the effective registrant is actually higher than 500k, and that the TTPC has underestimated certain segments. Furthermore, TGLO management believes additional industry segments will be added, thus allowing for more registrants. However, for purposes of this analysis we have very, very conservatively assumed the following:

Annual users: 350,000 (30% discount to TTPC estimate)
Annual pretax profit/user $35 (actually increases in yr 2 and beyond)
Implied net income $7.4mm (40% tax rate)
Multiple 30x (recurring rev stream, with a moat and no capex)
Implied value $220 mm

You can discount my conservative assumptions even more, but remember the company currently only has a $50mm EV ….and I haven’t even discussed the other business.

TGLO’s second asset is Glophone, the 2nd largest VOIP company after Skype. We are not telco experts and have not tried to verify the value of this business as we think the stock is undervalued even if you ascribe zero value to this business. Glophone has 5 mm users and claims it has invested as much or more in its technology ($40mm) than Skype or any other desktop telephony player. Glophone can be used from any device (mobile phone, home phone, desktop, wifi phone). The product is distributed at Office Depot, Compusa and Amazon, among others. This biz is currently slightly unprofitable. I understand this division is in the process of being sold. Skype was purchased for approximately $48/user and Glophone’s growth rate isn’t as strong as Skype’s and many people believe Ebay overpaid for Skype, and a recently ipo’ed comp, Cbeyond, has not fared well. So, lets discount Skype’s valuation by 50%...that implies a $120mm valuation for this Glophone (50%*$48*5mm users).. Discount my back of the envelope valuation even more, but remember this co has a EV of only $50mm and also owns the .travel biz.

Cash burn – the company has approximately $18mm of cash, which management estimates will last them 2 years. However, this estimate assumes 1) the company does not sell the Voip biz (the current major cash user)..again we believe they have already hired bankers to sell the biz and 2) the company does not take out any cash from the .travel biz, which next yr will be a cash flow machine.

The company has a 3rd biz; it publishes 2 print magazines : computer games and now playing. In addition it runs some websites related to computer games. New management was hired to run this division and it is currently break even. I’m sure it has some value to a strategic buyer, but I have ascribed zero value to it.

After a recent note conversion, Management owns 60% of the stock.

I have tried to include all the important information we know about TGLO in this write up. I suspect many of you will have questions about the company, especially Glophone, that I will not be able to answer. As a result, I strongly encourage you to call TGLO’s President,Ed Cespedes at 954-769-5900. He is very user friendly.


Official launch of .travel
Sale of VOIP biz
Increased investor awareness
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