Stockprowler.com | 9/10/00

Though the market is experiencing considerable volatility, Stockprowler.com believes that it is a healthy sign… a shakeout before the fall rally. One does not have to look far to see that things are looking up… last week's PIXT exploded and joined the ranks of previous recent picks AVN and DSLN as big gainers (see Scoreboard). In addition, all 3 picks have held a good portion of their gains despite selling pressure by day traders. Earlier picks EGGS and TRGA appear similarly poised to make a move soon…

Stockprowler's pick this week is…

BigStar Entertainment, Inc. (NasdaqNM:BGST)

Corporate Web site: http://www.bigstar.com/
Shares Outstanding: 10.2 million
Public Float: 3.1 million
Insider Ownership: 70%
Institutional Ownership: (5) 2%
Market Capitalization: $8.9 million
Closing Price Friday: $0.875

BigStar Entertainment, Inc. of New York City is an online retailer specializing in filmed entertainment. Bigstar.com (http://www.bigstar.com) is the company's entertainment superstore for movie lovers and features more than 70,000 filmed entertainment products including feature films, educational, instructional, TV series, and fitness shows on all formats including videos, DVDs and laserdisc. BigStar integrates over a dozen filmed entertainment information databases to create one of the most engaging sites on the web. The site features reviews, celebrity chats, star biographies, and daily movie news. In addition, bigstar.com customers can purchase videos and DVDs at discount prices or take advantage of special promotions daily on the site. The September 11th 2000 issue of Forbes magazine in an article Best of the Web rated BigStar.com its number one site for film lovers. BigStar was cited by Forbes for its clear and simple-to-use style, many categories, and detailed search options, including film genre, director, star, decade of release and rating. Also noted are the site's detailed movie descriptions, the ability for a user to view film clips or stills, full listings of credits and casting for each movie, links for movie stars that send the user to a bio page that, in turn, lists each of the actor's movies. In addition, Forbes made special mention of BigStar's Broadband Theater… BigStar.com's Broadband Theater allows visitors to preview more than 2,000 films and also offers full-length movies that can currently be viewed for free by those with high speed cable or DSL connections. The titles in Broadband Theater can also be ordered on digital video disc (DVD) or VHS video for delivery from BigStar.com.

Earlier this year, BigStar announced an agreement with INTERVU, Inc., a leading service provider for Internet audio and video delivery solutions, for INTERVU to distribute BigStar's Broadband Theater content of full-length films and film trailers over the Internet. "With a current subscriber list of 1.5 million unique addresses growing at 20% per month, BigStar needs to ensure that our broadband audience receives the highest level of performance," said David Levitsky, executive vice-president of BigStar.com. "INTERVU's proven distributed network infrastructure for streaming media provides high-quality support for our full-length film content and allows BigStar to focus on what it does best - creating a unique environment where visitors can view movies and previews over the Internet, see information about their favorite stars, and purchase filmed entertainment products, all in one visit." BigStar's goal is nothing short of eventually eliminating DVD and VHS products from its virtual store shelves. David Friedensohn, CEO of BigStar, says his company's business plan from the outset has been to move toward taking movies and other forms of entertainment directly to consumers, eliminating the need for portable storage devices such as VHS tapes and DVD's. Analysts have projected that by the end of this year, more than 5 million consumers will have high-speed Internet connections and computers with sufficient storage capacity and processing speed to view movies via digital downloads or streaming video. CEO Friedensohn stated, "It's like the movie Field of Dreams, people thought the guy was crazy, chopping down his corn to build this baseball field. He asked them to see the game of their lives. That's what I'm saying now. Sit down and watch what happens. If you build it they will come." On March 22, BigStar announced that the company had signed partnership deals with five leading online broadband long- and short-film content providers to significantly enhance the company's state-of-the-art BigStar Broadband Theater. Content from these partnership deals with leading film and entertainment sites Wirebreak.com, IFILM.com, reelshort.com, MovieFlix.com and InsideReel.com, will soon be integrated into the Broadband Theater section of www.BigStar.com. Friedensohn said, "These important content partners will provide BigStar's audience with the best and largest streaming movie site on the Web. We are proud to bring this filmed entertainment to our 1.7 million - and growing - subscriber base."

For the 2000 second quarter, ending June 30, the company reported a gross profit of $469,000 on net revenues of $2,591,000, resulting in a gross margin of 18.1%. The gross profit increased $1,277,000 from the 1999 second quarter, during which the company had a loss on product sales of $808,000 on net revenues of $2,265,000. Net revenues for the current quarter included $407,000 in advertising and promotional revenues, as well as $66,000 in revenues generated by Advaya, the company's online direct marketing division. There were no barter advertising revenues recorded in the second quarter of 2000. The company reported $284,000 in advertising revenues, all of which were barter transactions, in the 1999 second quarter. The net loss for the three months ended June 30, 2000, was $5,156,000, or $0.51 per share, compared to a net loss of $4,822,000, or $0.82 per share, for the 1999 second quarter, and $7,032,000, or $0.70 per share, for the 2000 first quarter. The lower net loss and resulting per share loss in the second quarter of 2000, compared to the first quarter of 2000, is primarily attributable to improved gross margins and reduced sales and marketing expenses. The lower loss per share compared to the 1999 second quarter primarily reflects the additional shares outstanding as a result of the company's initial public offering in the third quarter of 1999 and a private placement in the fourth quarter of 1999, which increased the number of shares outstanding.

For the six months ended June 30, 2000, net revenues increased 84.1% to $6,797,000 from $3,692,000 reported for the six months ended June 30, 1999. The resulting gross profit also increased to $664,000 from a loss on product sales of $1,124,000 for the 1999 six-month period. Net revenues for the first half of 2000 included $1,230,000 in advertising and promotional revenues, of which $235,000 was from barter advertising, as well as $66,000 in revenues generated by Advaya. The company had $284,000 in barter advertising revenues in the first six months of 1999. The net loss for the six-month period ended June 30, 2000, was $12,188,000, or $1.20 per share, compared to a net loss of $7,788,000, or $1.60 per share, for the prior-year six-month period.

It is the opinion of Stockprowler.com that BigStar Entertainment (NasdaqNM:BGST) is undervalued trading at substantially less than its book value of $1.15. As stated in an earlier Stockprowler Report we believe that the dot-com sector is oversold and has bottomed, as evidenced by the resurgence this past week of recent previous Stockprowler pick Egghead.com (NasdaqNM:EGGS). A recent Multex Stock Review states that "relative to its peer group (mid-sized Internet retailers) BigStar Entertainment's shares are among the most attractive". Analysts anticipate losses for BigStar will drop from $-3.18 in 1999 to $-2.24 in 2000. Losses are projected to continue to decline again in 2001 with losses in the area of $-1.32 likely. Earlier this year, First Security Van Kasper issued a buy rating with a 12 month price target of $11. On Sept. 6, 2000, First Security Van Kasper, an institutional brokerage and investment banking firm, announced that 160 public and private companies will be featured at its "Class of 2000" conference at The Ritz Carlton Hotel in San Francisco on September 11-13, 2000. More than 600 portfolio managers and analysts throughout the U.S. are expected to attend the sixth annual event. Kasper will lead off the event, welcoming presenting executives and financial community professionals with an overview of prevailing market activities and trends, identifying where he sees the greatest opportunities to enhance investment performance… BigStar Entertainment, Inc. will be among the presenters. In addition to being picked by Forbes, Bigstar.com was earlier named by Entertainment Weekly as number one in its Top 10 online movie sites for film lovers ranking BigStar ahead of its competitors. The Company's competitors include online sellers of videos, DVDs and other filmed entertainment products, including Amazon.com, express.com, Reel.com, a subsidiary of Hollywood Entertainment, CDnow and Buy.com; publishers and wholesalers of filmed entertainment products and related products such as Columbia House, Good Times Entertainment and Time Life Video; traditional filmed entertainment retailers, such as Blockbuster and Hollywood Entertainment; and specialty video retailers, mass merchandisers, department and electronic consumer stores, as well as non-store retailers such as mail-order video clubs.

With revenues up 84% over the same period last year, BigStar's number one ranking in online video retailing, high-speed internet access in demand by consumers, $12 million in cash, trading below book, the dot-coms on the comeback, BGST looks like a no-brainer to us with its move to build its "field of dreams" first in the broadband streaming video market. Yes, its stock price is cheap, there is high risk…

Good trading… Stockprowler