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The original version can be found at
http://www.techstocks.com/~wsapi/investor/newsletter-70
Steve Harmon, of the Internet Stock
Report isdex.com provides the
following interview. Below is the write up.
Steve Harmon, Vice President of Business
Development for Internet content and event
producer for Mecklermedia and Senior
Investment Analyst, of the Internet Stock
Report isdex.com. Steve came
up with a list of 10 stocks "to watch" back
on December 31st of last year. Since then,
the average stock in that list has gone up
175%! The worst performing stock in that list
was Onsale, which was up only a meager
38% year to date.
"The Internet has proven itself as a viable
medium," says Steve, "Large media
companies have not been too successful at
offering services on the Internet." Many large
companies have invested large stakes in
Internet companies such as Disney &
Infoseek, NBC & CNET, AT&T & TCI,
and he believes that is just the beginning in a
massive round of mergers. He has reasons to
believe that CBS may acquire Lycos.
Steve notes that the security software area is
long overdue for consolidation. Many
companies do not offer a complete security
solution or a one stop suite of products. Other
security software companies such as Trusted
Information Systems and Raptor Systems
have been acquired by larger companies. He
thinks that Checkpoint Software and
Security Dynamics are pieces to a larger
puzzle and could be bought out at some point.
One of Steve's favorite Internet companies is
CMG Information Services. "They have
proven themselves in finding valuable
companies," says Steve. They are a cross
between a venture capital firm and a mutual
fund. CMG owns 40% of Lycos, 33% of
GeoCities (which will go public soon with an
estimated market cap of $400 million) and
interests in about 20 other companies.
"Though difficult to value, the stakes
it has in more than 20 private Internet
firms could be valued at more than $1 billion
in a favorable public market," Steve says.
USWeb is another company that shows up on
his radar screen. They provide Internet
professional services such as Web Site
consulting and design to businesses. As many
companies expand their frontiers onto the
World Wide Web, USWeb will directly
benefit from this. Steve thinks their shares can
hit $50 over the next 12 months.
Many Internet companies trade at 10 to 30
times revenues. NewsEdge is a provider of
customized electronic information services
through the Internet. Steve finds it puzzling
that they have a market cap of $165 million
with annual sales north of $70 million.
NewsEdge has had some management
trouble and have taken some merger related
charges, which has affected their stock price.
"If they traded at 10 times revenues, which is
the average for an Internet stock, it would
have a market cap of $700 million... Their
stock has under appreciated when compared
to other Internet companies. Some of that
may be lack of brand," says Steve. A $700
million market cap would justify a stock price
of $40. "Will NewsEdge get there? Probably
not. But even half that would be $350 million
market cap," he adds. Given its subscriber
reach and depressed share price Steve views
it as an attractive acquisition target for
someone such as Dow Jones or Reuters.
Steve recently did an analysis on Amazon
Books. Assuming that they could grab 3% of
the overall book market looking ahead 2 to 3
years, that would put their sales north of $1
billion in revenues. "If you want to add music
and videos, they could have revenues of $2
billion by the year 2001, if they are trading at
5 times revenues, they could have a $10
billion market cap during that time period" he
says. Amazon's current market cap is $5
billion and a $10 billion market cap would
imply a price of $200 per share. "But that
could be frothy if the Internet shifts to direct
publisher to consumer sales," Steve cautions.
"The role of middlemen on the Web must
have greater added value to justify consumers
paying that extra margin to them."
Have you ever heard of an Internet Stock
Index called ISDEX? If you haven't, you're
not alone. It is a basket of 50 Internet
stocks that has been gaining much
recognition since its inception in early
1996. This index of stocks was developed by
Steve and Mecklermedia. He expects the
index to end in the 170 area for 1998, up
from 158 currently. ISDEX is referred to
often in the financial press as the leading pure
play Internet stock index. "We think of it as
the 'Dow Jones Average' for the information
age," Steve says. Internet Stock Report
readers include none other than Microsoft's
Bill Gates, Yahoo's Jerry Yang, Netscape's
Marc Andreessen, Kleiner Perkins' John
Doerr, AOL's Ted Leonsis among the
thousands that follow Steve's analysis.
"Anyone with an eye on the Net as a business
or investment is encouraged to get in the loop,
Steve notes. "Our readership really is a
community of investors and entrepreneurs.
Everyone who hit it big started out with a
good idea and lots of sweat. That's part of the
beauty of the Internet. Anyone has a chance
to make a difference." |
