09:18am EDT 16-Apr-99 Thomas Weisel Partners LLC (David Readerman 415-364-2573)
AOL, MSFT, INSP, RNWK, AMZN (Thomas Weisel Partners) "Internet Recap"
April 16, 1999 Thomas Weisel Partners LLC
David Readerman, CFA INTERNET RECAP
(415) 364-2573 INTERNET SECTOR: AOL, MSFT, AMZN, RNWK, INSP
dreaderman@tweisel.com
Geoffrey Beard
(415) 364-2639
gbeard@tweisel.com
Krista Bessinger
Matthew Finick
(415) 364-2577
mfinick@tweisel.com
Executive Summary
* "Why are they down?" Our answer: "They can't go straight up forever - no
matter how promising the future."
* The broad Internet sector sell-off is not unexpected.
* Use sell-off to build positions in core long-term investment names: Amazon,
AOL, Microsoft and Real Networks.
* Newer "born on the web" companies such as InfoSpace deserve attention.
*Our motto: we want diversified revenue streams. All these stocks are rated
BUY.
"Why are they down?": The now 3-day Internet sell-off, as measured by the 7.3%
decline in the DOT Index, has prompted in-bound calls asking: "Why are they
down?" Put another way: they can't go straight up forever. Several
explanations: (1) Internet stocks are very "fully valued," in our opinion. (See
our attached scatter plot of selected Internet companies). Consecutive daily
stock gains of +20% are NOT the norm. Consider gains in e*brokerage stocks
Ameritrade (AMTD), E*Trade (EGRP) and "web-ified" Charles Schwab (SCH) of 128%,
57% and 43%, respectively (from 4/1 to 4/12); (2) Cyclical stocks are cheap -
growth stocks (Internet as a proxy) are not. Consider Dow Jones Industrial
Average upside EPS results from low-P/E "bricks & mortar" stocks, International
Paper and Ford. These two stocks are ahead 25% and 4% this week, respectively,
on strong earnings; and (3) We do not believe that all Internet stocks will
work: The Tuesday post-market close 1Q99 March financial results of Infoseek
(SEEK) were ($0.93) EPS on $29.6 million in revenues. This was a sequential
revenue decline from $30.2 million in 4Q98.
Leading indicators to watch for a probable correction: IPO calendar. We count
50 Internet related IPO financings in registration. If priced within the range,
this suggests $2.5 billion in new Internet capital. Expect a likely news
headline: "Internet IPO does NOT trade up 100% on opening day!" Also, we
believe weaker "second tier" Internet sector names could disappoint. Watch for
possible sequential slowing in Internet ad driven revenue stocks.
April 14, 1999 Excite (XCIT) 1Q99 March revenues of $54.1 million were flat with
December. - Internet sell-off could continue. Excluding the $14.2 million from
Matchlogic (profiling database), Excite banner ad revenues declined (3%) to $40
million.
|
