Net stocks.... another point of view:
TAUB TALK: Expect a 20%-40% Internet Correction
April 14, 1999
Steve Taub
Internet investors, consider yourselves warned.
Once the quarterly earnings reporting season winds down at the end of this month, internet stocks will probably correct by at least 20% to 40% over the next few months.
Says who? None other than Keith Benjamin, the hotshot Internet analyst for BancBoston Robertson Stephens.
That's right. Speaking at a Tuesday morning internet conference sponsored by Multex.com, Benjamin said he expects internet stocks as a group to begin declining beginning around the end of April or beginning of May when we run out of companies reporting quarterly earnings. Why then? 'Then there will be a dearth of (good) news,' he says.
The only thing to tide investors over will be the IPOs. But, they're no longer doing the trick. Benjamin notes that due to the plethora of new issues, the stocks are suffering from a case of 'New Girl in High School' syndrome. (He then added new boy for political correctness reasons.) 'So you forget the old girl,' he says.
In other words, several days after a net stock goes public, it seems to sink from its initial meteoric rise. Two recent cases in point: Priceline.com (NASDAQ: PCLN) and Value America (NASDAQ: VUSA).
For example, Priceline.com closed at $69 on its first day of trading at the end of March and then raced up to $92. It's now trading around $79. Value America, the web retailer which went public last Thursday, is currently quoted at $51.75 after trading as high as $74.25.
But, don't get out of the net stocks just yet. They can still enjoy another nice pop as more companies report strong quarterly results.
In fact, when E*Trade (NASDAQ: EGRP) reports on Thursday, Benjamin expects a 'Blowout Quarter.' His words. 'They're having a phenomenal quarter,' he adds.
In fact, E*Trade is now at a crossroads in its development and must decide what form of ownership it prefers in the future. 'It's a question of who they buy or who buys them,' Benjamin insists.
Benjamin, however, bets that E*Trade will choose to sell to a larger partner. And who will buy E*Trade? 'If I had to guess, Goldman Sachs would have to buy them,' he insists. Is this really possible? 'Yes.'
First, Goldman must complete a successful IPO. Then it will have a valuable currency to use to buy E*Trade, Benjamin explains.
On the other hand, Benjamin didn't exactly endorse the prospects of several online retailers. In fact, he referred to Buy.com, which is private, and Onsale (NASDAQ: ONSL) as having 'hopeless business models.'
Why? 'They buy and sell goods at cost. Then rely on ads' to make money. However, in his estimation, Onsale has underestimated the importance and value in investing in strong fulfillment operations (taking, processing and shipping an order) and customer service. 'They need to take care of the back-end-customer service,' he adds.
Would Amazon.com (NASDAQ: AMZN) apply too? 'No,' he insists. 'They're spending on fulfillment.'
Yikes!
|
