INKTOMI CORP. (INKT) 71 +23. Valuations are a thing of the past
as this software developer of Internet caching products
is perfect proof of the how investors no longer apply the
fundamentals that are instrumental in evaluating companies.
This issue has appreciated more than 285% in less than one month
since it went public, 46% today alone. While revenues at
this provider of scalable cluster technology are expected to
grow at around 145% in the coming year, the movement in
price since the company made its debut last month at $18 a
share is quite remarkable. The again, this is probably true
about any stock associated with the Internet (see story
below). Today, the company received two initial ratings from
its underwriters, Goldman Sachs and Hambrecht & Quist. While
Goldman started coverage with a "market outperform," H&Q
initiated coverage with a "buy" rating. Keep in mind,
however, that while both firms underwrote the initial public
offering, they significantly underpriced this issue given
the reception the stock received on its debut when it
doubled in price. This is nothing in comparison to what the
stock has done since. While we would like to believe that
this company is worth every penny that investors are
obviously paying up, it is hard to imaging that even with
its rapid revenue growth and leading Internet technology
that business will be able to keep up with the rise in the
stock. To be sure, no earnings are expected to be posted
until the year 2000, at the earliest. The stock may manage
to hang on to its gains as long as the Internet fever reigns
supreme and sales growth can be maintained. However, at the
first sign that the hot money is going away from this
sector, don't be surprised to see a major price correct
occur in this issue.
14:45 ET ******
INTERNET VALUATIONS: As you probably already know, Internet
stocks do not trade on multiples to earnings, as most are at
least several years away from producing profits. Instead,
analysts and investors rely on revenues (either trailing
12-months or projected 1 or 2 yrs out) as a gauge of an
Internet stock's relative valuation. Although it is very
difficult to put a cap on Internet valuations given the
strong demand for industry stocks, (particularly in the
leading search-engine names) we can look for names which
currently look "cheap" relative to the remainder of the
group. Investors who engaged in this type of research when
the larger-cap Internet stocks rallied earlier this year
were oft times rewarded with 50% to 200% gains as money
began to sprinkle into the 2nd- and 3rd-tier names. The
following is a short list of Internet stocks, from the
top-tier to the bottom-wrung, and their current valuation on
a 12-month trailing revenue basis. One should keep in mind
that as earnings are released for the calendar 2nd qtr,
these multiples will be lowered dramatically as the latest
quarter's sales figures will be included in the calculation.
For example, if Yahoo! reports another 200% yr/yr increase
in sales as it did in Q1, the company's trailing Price/Sales
ratio would fall from its current level of 103 to 78, a 24%
reduction. So, in essence, it is just a matter of days
before Internet valuations contract dramatically.
Price/Sales
Ratio Market Cap
Yahoo! (YHOO) 103 $9 bln
Amazon.com (AMZN) 31 $6.8 bln
Lycos (LCOS) 38 $1.7 bln
Egghead.com (EGGS) 1.05 $307 mln
Netscape (NSCP) 9.6 $3.9 bln
InfoSeek (SEEK) 28 $1.2 bln
Audio Book Club (KLB) 8.7 $98.4 mln
DoubleClick (DCLK) 32 $1.2 bln
NetGravity (NETG) 49 $345 mln
CNET (CNWK) 26.7 $1 bln
Spyglass (SPYG) 11.8 $172.5 mln
Excite (XCIT) 39.5 $2.59 bln
CDNow (CDNW) 15.3 $380 mln
(source: Briefing.com) |
