Monthly Web Ratings – 21 May 1999
2
n Implications of April Data For Stock
Performance
* AOL Neutral
* Amazon.com Neutral
* Yahoo! Neutral
* Infoseek Neutral
* Lycos Negative
* At Home Neutral
n Analysis/Discussion of month-to-month decline
in overall users.
For only the second time in the last year, Media
Metrix's estimate of overall U.S. web users declined
month-to-month—from 61.5 million to 61.1 million.
We don't wish to make too much of this—the
numbers are extrapolated from a small sample and
warmer weather usually results in a seasonal decline
in web usage—but we can't help but notice it and
wonder whether it is a harbinger of the flattening of
the growth of web users in the U.S (we also didn't
see the same seasonality last year). If so, it obviously
has several implications for the Internet companies
and stocks.
There are three major drivers of value creation in the
consumer online market: 1) new users, 2) new
advertising dollars, and 3) new commerce dollars.
For most of the industry's history, each of these
metrics has increased significantly each quarter,
offsetting seasonality and driving the value of the
businesses that live off of them upwards.
As the online industry matures, we expect that the
growth of each of the three value-drivers will begin
to slow—perhaps in the same order listed above
(users first, advertising dollars second, commerce
dollars third). As this happens, the tide should stop
rising and all of the web boats—and their heady
valuations—shouldstop rising with it. At that point,
the competitive landscape will enter a market-share
phase, and the only stocks worth owning, in our
opinion, will be those of companies that are steadily
gaining share.
We don't want to read too much into a single
month's decline—as mentioned above, the numbers
are extrapolated from a small sample and one month
does not make a trend. We do take it as a reminder,
however, that all good things will come to an end and
that, at some point, the steady sequential growth of
all three consumer online value drivers will give way
to seasonality and more modest year-over-year gains
(at least in the U.S.—the international markets should
grow sequentially for years to come).
n Recommendation
Just in case the growth of new users in the U.S. is
starting to slow, we continue to recommend that
investors place the majority of their internet holdings
in the strongest companies—those that are gaining, or
at least holding, market share in all of the key metrics
and those that have strong international operations.
Based on this months' numbers, these would include,
AOL, Yahoo!, and Amazon.com.
[ATHM] MLPF&S or one of its affiliates was a manager of the most recent offering of securities of this company within the last three years.
[AOL, SEEK, LCOS] MLPF&S was a manager of the most recent public offering of securities of this company within the last three years.
[AMZN, YHOO, SEEK, ATHM] The securities of the company are not listed but trade over-the-counter in the United States. In the US, retail sales and/or distribution of this report may be made only in states where these
securities are exempt from registration or have been qualified for sale. MLPF&S or its affiliates usually make a market in the securities of this company.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 1999 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). This report has been issued and approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is
regulated by SFA, and has been considered and issued in Australia by Merrill Lynch Equities (Australia) Limited (ACN 006 276 795), a licensed securities dealer under the Australian Corporations Law. The information herein was
obtained from various sources; we do not guarantee its accuracy or completeness. Additional information available.
Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments").
MLPF&S and its affiliates may trade for their own accounts as odd-lot dealer, market maker, block positioner, specialist and/or arbitrageur in any securities of this issuer(s) or in related investments, and may be on the opposite side
of public orders. MLPF&S, its affiliates, directors, officers, employees and employee benefit programs may have a long or short position in any securities of this issuer(s) or in related investments. MLPF&S or its affiliates may from
time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report.
This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific
person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that
statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive
back less than originally invested. Past performance is not necessarily a guide to future performance.
Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced
by the currency of the underlying security, effectively assume currency risk. |
