The Internet Financial Connection, December 2, 1998
Presented by Mark Johnson, Editor of the IFC
techstocks.com
It appears exclusively on Silicon Investor
techstocks.com
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techstocks.com
Steve Harmon, of the Internet Stock Report
isdex.com provides the following
interview. Below is the write up.
One area where there has been a supply/demand
problem is in the Internet IPO area. When the
theglobe.com went public a few weeks ago,
primarily institutional investors and a very
small number individual investors were able to
buy the stock before it actually traded on a
stock exchange. The underwriters transfer the
stock mainly to institutional investors and
"special" high status clients with high a net
worth. "It is like having 2 seats in a movie
theater and having 100,000 people waiting
outside to get in," says Steve Harmon of the
Internet Stock Report, "Something is not right
here." A very small number of individual
investors will actually get in on the
underwriting. You will read in press releases
that theglobe.com actually went public at $9 a
share and then soared to $97. In a sense, that
is true. What individual investors are not
understanding is that when theglobe.com opened
for trading, it started trading at $87 per
share. It then shot up to $97 per share and
ended the day trading in the low $60's. Less
than a week after going public, theglobe.com's
shares hit a low of $32 per share. Steve urges
that investors use extreme caution before
purchasing a fresh Internet company that has
just come to the market and most of all, do
some homework before investing.
Steve notes that the demand for Internet IPO's
are enormous and not enough IPO's are coming to
market to meet demand. "It's like dropping a
small sponge into an ocean, once it hits, it is
quickly absorbed." To add to the scarcity of the
Internet IPO's, from mid September through
October, there was not one high profile Internet
IPO. Steve adds that well known Internet stocks
such as Yahoo! and Amazon could have been
purchased below their opening day prices, if
investors would have waited.
One of the first questions Steve believes that
investors should ask themselves is, "how much
am I willing to lose?" before purchasing an
Internet IPO. He thinks, it would be best if
investors waited a few days until after an
Internet IPO became public to buy their shares.
"Basic fundamentals should also be used such as,
what the company does, their business model, who
is the management, how big is the potential
market and who are their competitors?" He still
thinks some investors can make money in some new
IPO's that have come to market. eBAY is one
example of successful recent IPO. Their stock
publicly started trading at $50. A few short weeks
later, it went down to $25 per share. Recently,
it shot up to $234. Cases like this are rare and
not likely to happen for each IPO.
One of the events driving the Internet Stocks was
the forecast of strong Christmas sales over the
Internet. This strong forecast of "E-tail" items
being sold over the Internet has led to strong
gains in the Internet Stocks. Since the beginning
of November, Yahoo! has gone from $130 to a high
of $227, Amazon went from the $130's to $233, eBAY
from the low $90's to $234. Some pundits think
that the Internet is like a "Tulip Mania." Others
are trying to get in on the bottom floor of the
next great "Industrial Revolution."
I will admit, I think many Internet stocks will
move considerably higher going into 1999, but the
recent pull back in the Internet area was due.
Usually after excessive stock run-ups and when
option premiums become very great on Internet
stocks, like they are right now, Internet Stocks
have been considered overvalued for the
short-term trader.
Another reason why Internet Stocks have made an
enormous run-up is because there is simply not
enough supply out there to meet demand.
StreetAdvisor.com estimates that the total market
cap of the 20 major Internet companies, with
combined market caps total close to $100 billion.
The stock market has over $10 trillion in
marketable securities. The article notes, if every
investor were to allocate 2% of their portfolio
to Internet Stocks, that $100 billion would turn
into $200 billion. That of course would double the
current price of the average stock in the Internet
area and of course add fuel to present fire. |
