A perspective from MSFT's own beast of burden (MSNBC). Even they feel that MSFT stock might take a hit on the AOL/NSCP deal...
How would AOL deal affect stocks?
Analysts say high-tech roller coaster could get even steeper
By Emory Thomas Jr.
MSNBC
Internet investors: Fasten your seatbelts. The very prospect of a marriage between
America Online and Netscape Communications is leading some analysts to predict
increased volatility for a group of stocks already known for their roller coaster rides.
THE INTERNET INDUSTRY, young as it is, is no stranger to mergers and
acquisitions. Web-based music retailers CDNow and N2K, for instance, are combining
forces, as are fledgling movie retailer Reel.com and the video chain Hollywood
Entertainment.
But analysts believe the potential AOL-Netscape deal, which also may include Sun
Microsystems, could be the largest and most consequential deal to date. This
transaction, they suggest, is the kind that could trigger a new round of high-level mergers
and acquisitions, as well as a reevaluation of Internet stocks across the board.
“There will be drastic changes” in share prices during upcoming trading sessions, says
Rick Doherty, president of Envisioneering Group, a research firm in Seaford, N.Y.
The way Doherty and others see it, a Netscape-AOL-Sun deal has the potential to
create two major shifts. One is to give non-Windows-based computing platforms a
better chance to compete against Windows-creator Microsoft Corp. (Microsoft is a
partner in MSNBC.) With Netscape's Internet products, as well as its army of software
developers, the reasoning goes, Sun and its Java platform would stand a better chance
to offer the full range of computing services on non-Windows devices.
The other major change, some analysts believe, might be to give AOL a tighter lock on
the online world. Already the dominant online service provider, AOL could potentially
benefit from Netscape's online software products. The two also could combine their
Web portal sites (ranked Nos. 2 and 4 in one recent study) to become more powerful
in Internet content.
These two potential shifts raise several issues for investors. Among them:
What happens to the portal plays? Yahoo is the reigning king of Web traffic by some
measures, but simply combining the Internet audiences of AOL (owner of AOL.com)
and Netscape (purveyor of its Netcenter site) would create a mammoth rival. Would the
new marriage prompt some sort of courtship between Microsoft, the other browser
distributor, and Yahoo?
And what about Excite and Lycos, two other Internet-gateway providers that rank
behind Yahoo? Excite has a close relationship with Netscape, supplying its Netcenter
portal with search and other services, and guaranteeing the company $70 million in ad
revenue over two years. How a possible AOL alliance might affect that deal - and
Excite's market position — is unclear.
Will confidence in Microsoft shares be shaken? Rob Enderle, analyst with Giga
Information Group in Cambridge, Mass., certainly believes it could be. “The
combination of two of Microsoft's most powerful competitors using the assets of a third
with the intent of driving a stake in Microsoft's heart ... is probably the most compelling
threat [to Microsoft] to date,” he contends.
Will personal-computer makers be hurt? “Once people find out you don't have to have
a Microsoft operating system to run things, it is going to change things drastically,”
suggests Doherty. That could mean bad news — and lower share values — for
Compaq and other Windows-based computer makers, he believes.
Will Sun rivals suffer? Enderle thinks they will. “This makes Sun a lot more powerful
than they currently are,” he says. And shares in the likes of IBM could take a hit
because of it, he concludes.
Both Enderle and Doherty stress that even if the AOL deal goes through, its effects will
take months or years to manifest themselves. But meanwhile, the stakes in the Internet
business appear to have been raised over the weekend.
“It's all potentially pretty powerful,” says Enderle. |
