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Technology Stocks : DoubleClick Inc (DCLK)
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To: zalesky who wrote (1549)4/20/1999 12:19:00 PM
From: SteveG  Read Replies (1) of 2902
 
From NBMO's Alan Braverman (who doesn't cover DCLK - yet) this AM:

Why the fall?

- As predicted in our launch of Braving the Internet, this is the first quarter where we are seeing slowing sequential revenue growth in some Internet stocks.

- We believe that this is due to two factors. The effects of the inherent seasonally underlying Internet advertising and e-tailing. Sequential comparisons are very difficult given this sector's very strong 4Q98.

- This seasonal slowing in the face of the large year to date stock price increases combined with an incredibly full pipeline of new Internet issues creates a precariously positions for stocks in the
Internet sector. In this condition it only takes a straw to break the camel's back.

- Could the stock prices decline further? ¾ Yes. We believe that the negative sentiment could continue a bit longer. Our feedback from the street was that Monday's sellers heavily retail, which may have
been incited by last Thursday's selling which was more heavily Institutional. Retail investor behavior is a difficult thing to predict. However, we do expect strong earnings reports from AOL
(4/27) and AMZN (4/28). This time of weakness could be a good time to buy for the long run.

- We are generally looking for less upside through the summer (sideways trading) with another strong run towards year-end¾all else being equal, (which of course it never is).

- We believe that valuation on a fundamental basis to date this year has grown faster than the underlying opportunity and therefore have maintained a mildly positive rating on the sector. We measure this on a price to expected free cash flow to free cash flow growth. We believe based upon this metric, that there could still be some downside to current valuations. We also believe, however, that free cash flow could actually accelerate toward 2H99, which would adjust our metric downward, making the metric more reasonable (see attached chart historically comparing Internet companies to traditional media companies)

- Supply and demand: we continue to see an historic backlog in supply of new Internet stocks that should put a general damper on the prices of stocks in the sector. Based upon what we have seen of the backlog, supply could nearly double and demand appears to be up in the air based upon the past few day's results anyway.

- Action Items look for market stabilization and buy the blue chips. Specific recommendations: AOL has fallen 34% from its high and we believe they will report a very solid Q1, AMZN is off 20% from its
high and is also expected to report a very good quarter. (data table on this follows)
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