01:51am EDT 18-Jun-99 BancBoston Robertson Stephens (Benjamin, Keith 415-693-3
THE WEEKLY WEB REPORT (Page 1 of 3)
BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
Keith@rsco.com
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June 18, 1999
The Web Report -- Volume 2, Issue #24
This week, the NETDEX index fell 1.8% from last week to 555.91. For comparison,
the NASDAQ ended the week up 2.4% from last week.
THE JET IS BACK ON THE RUNWAY AND THE ENGINES HAVE STARTED - After two hard
weeks of failing to find the bottom, we are greatly encouraged by this week's
rebound. We had underestimated the negative influence on Internet stocks of
the overall market decline on interest rate concerns. In a more stable tape,
we expect the stocks will continue upwards through anticipated positive
surprises for reporting season. The only excuse we've heard for investors
hesitating to plunge back into Internet stocks is a fear that the summer may
somehow dampen activity. This concern is misplaced, in our view. First,
actual company seasonal traffic patterns are factored into our estimates.
Second, commerce activity appears to be accelerating despite the tendency to
spend a bit more time outside than indoors during the summer. Third, we would
agree that there will be even more room to beat estimates in the September and
December quarters. As such, we would expect our recommended stocks may not
move past previous highs until the next reporting season. That still leaves
room for a substantial rebound in the 25% to 50% range from current depressed
levels. We expect the buying frenzy will again be a sharp as the selling
panic. After this reporting season, we expect those companies that report
faster than average growth will hold on to these gains and not return to these
lows, held up by anticipation of the seasonally stronger second half.
FOCUS STOCKS -- After the recent correction, we have broadened the list of
stocks we would recommend purchasing now. Our favorite stocks include Amazon,
AOL, CMGI, CNET, Digital River, eBay, Excite @ Home, InfoSpace, Lycos,
Mapquest, Modem Media Poppe Tyson, Multex.com, NetGravity, Net Perceptions,
Priceline, SportsLine, TicketMaster CitySearch, and Value America.
SUMMER SEASONALITY -- We have heard concerns about Web usage slowing slightly
in May, according to survey data expected to be reported by Media Metrix next
Monday. This is seasonally normal as we spend more time outdoors. For
reference, last year, estimated unique users were flat between April and May,
with time spent per person at work and home down slightly. Even in seasonally
stronger months, changes in the aggregate community have been modest on a
month-to-month basis. For reference from April 1998 to April 1999, estimated
unique users grew 13.4% from 53.9 million to 61.1 million, with average time
spent up 40.7% from 5.3 hours per month to 7.5 hours. It is critical to
remember that Internet economic models are driven more by how many things
people buy online than how many minutes they spend online. The pace of
purchases seems to be growing faster on the increasing awareness of the
convenience of Web shopping. As evidence, Amazon.com announced its customer
base has grown to over 10 million, up from approximately 8 million at the end
of March. As such, we expect strong results to be reported by most companies
for the June quarter.
CMGI: We recently upgraded CMGI from a Long-Term Attractive to a Buy,
reflecting our belief that the stock looks attractive relative to its possible
future asset value. We estimate CMGI's current asset value is, conservatively,
around $38. Our "optimistic" estimate assumes that nearly every company in the
portfolio goes public, suggesting a $150 target. With the stock price now in
this range, we are more enthusiastic, especially as we are able to gain
visibility on short-term catalysts, which we expect could be large investments
or acquisitions. The company announced that in addition to raising a fourth
venture fund to begin in 2000, @Venture IV, it will also raise a late stage
crossover fund, called @Venture Late Stage Crossover. We believe both of these
funds could be 2 to 4 times the size of @Venture III, or as big as $1 billion
each. CMGI's value starts with the connections and investment savvy of its
management team. As the Internet stock group becomes bigger and more
confusing, we believe more investors, both individuals and institutions will
appreciate having CMGI's effectively create a leading Internet investment
vehicle. We believe the stock will be in the first group of stocks to recover.
Further, two subsidiaries should be on IPO road shows in the coming weeks,
which we expect could be catalysts for the stock.
AMAZON -- INVESTING IN HIGH-END AUCTIONS - Amazon.com announced this week it is
investing $45 million for an approximately 2.5% stake in auction house
Sotheby's. Together the companies plan to launch a joint online auction site,
sothebys.amazon.com. We are not surprised by Amazon's move into high-end
auctions and believe they could not have picked a better real-world partner in
Sotheby's. In our opinion, Amazon's strong brand awareness with online shoppers
and the Sotheby's name could be a powerful combination in the online auction
market. We believe one of the biggest obstacles facing online auctioneers is
authentication of genuine products and suspect counterfeiting of antiques and
collectibles is wide-spread, such that we believe it is crucial for auctioneers
to provide an authoritative voice to ensure consumer confidence. Given the
critical role that brand and expertise play in generating consumer confidence
and the relative scarcity of antique and collectible authenticators, we believe
the online auction market for high-end products could have bigger barriers to
entry than other auction categories. As a result, we feel the players in this
market could benefit from minimal price competition and with this investment,
Amazon has propelled itself into the lead pack of franchise auction eTailers. |
