Zapata's decision to jump back into internet sector may bode bad omen to internet sector. According to WSJ, Zapata has an errie accuracy for buying at the top and selling at the bottom. If this theory is true, then internet index ISDEX will probably form a double top before it tumbles down. I think the second double top will occurr either on Jan. 5, when AMZN splits or when Jan. 12, when YHOO announces earnings and split.
Wisefool
========= An article from WSJ about this theory ==========
interactive.wsj.com
December 24, 1998
Tech Week
In Sign of an Overheated Market,
Zapata Gets Back in the Net Game
By JASON FRY AND LISA BRANSTEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
WHO SAYS there are no second acts in American corporate lives?
Houston's Zapata Corp., founded in 1953, isn't shy about reinventing itself: In the 1980s, the oil company remade itself with a move into fish protein and food-packaging. Then, in the mid-90s, the company fell under the control of Florida financier Malcolm I. Glazer, a successful veteran of the real-estate and broadcasting industries, a major shareholder of the Houlihan's restaurant chain and the owner of the National Football League's Tampa Bay Buccaneers.
This year, Zapata decided to undergo another facelift, intending to remake itself as an Internet giant. The company stunned both Wall Street and the Internet world in May with an unsolicited $1.8 billion bid for search engine Excite Inc., which was rejected, and then saw its $400 million bid for Web directory WhoWhere? dismissed as well. Meanwhile, Zapata was taking out newspaper ads offering to buy Web sites with an eye toward creating its own portal site -- Zap.com. President and Chief Executive Officer Avram Glazer was telling everyone who would listen that a planned spinoff of Zapata's Internet operations could be one of the two or three most important Net companies in the world.
But in October, with Internet stocks taking a beating, Zapata called the whole thing off. Purchases of or investments in 31 Internet properties? Canceled. That plan to spin off its Internet operations? Ditto. Going back to fish oil? You betcha.
It looked like the New Year's resolutions at the Glazer house might have something to do with not believing the Internet hype. But a funny thing happened this fall: As the temperature plummeted, Internet stocks soared to truly otherworldly levels. This week, Net-retail king Amazon.com Inc. and online auctioneer eBay Inc. saw their share prices top $300, and uBid Inc., a second-tier auction site, racked up share-price gains of more than $50 two days in a row.
And this week, Zapata reconsidered having reconsidered. The Internet
strategy was on again. Zap.com was back in business.
It's a strange story, one that's drawn horse laughs from analysts and
bitheads from the beginning. But investors haven't laughed -- in fact,
Zapata's share price nearly doubled the second time the company
announced its strategy. So who's right?
Back in May, the laughter was widespread but unfair. Excite, confronted with Zapata's out-of-nowhere bid, compared its market capitalization with its suitor's and issued a tart press release saying it was declining to acquire Zapata.
But the laughing techies were overlooking one minor detail: Fish oil, while not a particularly glamorous business, is a profitable one. In the quarter in which it bid for Excite, Zapata had profits of $58.1 million. For those not keeping score, that's $58.1 million more in profits than Excite has made in its entire existence. And even a cursory look at the Glazer empire would have shown that it was built on dealmaking, not fish oil. With portal sites like Excite striking deals left and right in May, dealmaking was the order of the day.
This is not to say that Excite and Zapata were a good fit -- they weren't. But at the time, the laughter that greeted Zapata's ambitions had a lot to do with the arrogance that circulates as freely as stock options in the high-tech industry, and very little to do with Zapata itself.
Unfortunately, now that Zapata is determined to try again, the laughter is justified. Zapata now has an Internet track record, and it's a grim one: The company has shown zero acumen for the Internet industry and absolutely no patience. At a time when the Internet game still demands plenty of frontier spirit, Zapata has been totally unwilling to rough it.
The first indication that the naysayers might be right came in July, when Zapata gave the market a peek at its plan for a portal site. The company's first two acquisitions were the Webzines Word and Charged, two Web pioneers whose luster had dimmed. To these two has-beens Zapata added a motley collection of 20-odd never-weres. Zapata had grasped the idea that a portal was an amalgamation of sites, but had somehow missed the point that the sites had to be interesting.
That wasn't fatal -- one analyst pointed out that successes for just two or three of Zapata's sites could make the whole enterprise worthwhile. But Zapata's real failing was the way it turned tail and ran once Internet stocks came in for one of their periodic bludgeonings.
This week Robert Keller, head of Hambrecht & Quist LLC's Internet
investment-banking practice, was damning -- and dead accurate -- about
what Zapata had done: "They saw this white-hot market and they wanted
to dive in, and then they saw the market retreat and they wanted to retreat as well," he said. "If you have a dedicated strategy to leverage a new medium or a new distribution channel for your business, then that decision should be independent of the volatility of the financial markets."
Bingo. There are dozen of newly minted Internet moguls with paper
fortunes built on air, but none of them panic and run for cover when the rain comes -- as it inevitably does. They're in it for the long haul; so far, Zapata has shown that it's in it to get rich quick.
Zapata has shown one quality of great
value to Internet investors: an eerie
accuracy at finding the beginning and
end of Internet-stock rallies. On July
6, when the company proudly unveiled
its plan to launch a portal site,
Mecklermedia Corp.'s ISDEX index
of Internet stocks closed at 201.05
(A). That turned out to be the
culmination of a two-month rally for
Net stocks; by August 1 the ISDEX
was shy of 170 and rapidly heading
south. On October 15, when Zapata
called off its Internet strategy, the
ISDEX was languishing at 133.50 (B).
Since then, Internet stocks have
surged far above their July highs,
reaching unearthly heights. And so on Dec. 23, with the ISDEX at 305.69, Zapata got back into the Internet game (C).
Given Zapata's uncanny bad luck at picking its spots, what that means for Internet stocks should be clear to anybody.
"You should basically be bringing the women and children indoors," said Keith Benjamin of BancBoston Robertson Stephens. "This is getting scary." |
