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Technology Stocks : CMGI What is the latest news on this stock? -- Ignore unavailable to you. Want to Upgrade?

To: Rene Madsen who wrote (10140)	6/15/1999 8:35:00 AM
From: SJS	Respond to of 19700

I mentioned my perception regarding change last week directly after the CMGI earnings announcement. Here seem to be some corroborating points from Briefing.com today: __________________ Blood On The Net Along with many analysts, we argued last week that the correction in the Internet was much like every other correction in the sector. It was a short-term phenomenon and would be healed in short order by the approach of another round of strong earnings. We were wrong. Yes, the Internet as a business is still fundamentally sound. And yes, the Internet as a sector will have many more good days in the future, maybe even on Tuesday (doubtful). But the Internet as a stock trading phenomenon has changed. For good. That this day would come was inevitable. You can't have 30% corrections followed by 300% rallies ad infinitem, particularly when valuations are getting up in the tens of billions before revenues have even reached the hundreds of millions. The guessing game was which correction would be the one that was, in fact, not a correction at all. Human nature dictates that when the last ten were all corrections, you go for eleven. We and many others did. We should have held at ten. The Bubble Has Popped What has changed? The short answer to that question is that the Internet bubble has popped. The bubble can be neatly defined as the period during which Internet stocks were valued on supply/demand rather than their true business prospects. Do not interpret this to mean that Internet companies with no earnings are worthless. You can indeed make some assessment of what a company will ultimately be worth when its business matures. What you can interpret this to mean is that the flood of Internet supply this year -- much of it being low quality -- has removed the supply/demand equation as a factor and forced investors to make more rational judgments of companies in the sectors. That rationality was demonstrably lacking last year, as evidenced by such 15-minutes-of-fame stocks as PMKY, KTEL, MZON, DBCC, and many more. For many of these stocks, there was simply no rational case made for their valuations -- they traded higher because huge amounts of money were chasing very few quality Internet stocks. A Double Edged Sword Even for supposedly respectable Internet stocks such as Priceline (PCLN) and Onsale (ONSL), there was a disconnect between the companies' prospects and their valuations. This disconnect benefitted Internet stocks on the way up, but it's a double edged sword. On the way down, companies like Dell (DELL) or IBM (IBM) can find support because they have proven business plans and measurable earnings prospects. But what about a Priceline.com? How much is a company with minimal revenues and no proven concept worth? $15 bln? $10 bln? $1 bln? $100 mln? It's a frightening question to ask for all but the strongest Net stocks. The AOLs and Yahoos of the Internet world have the benefit of proven concepts and actual earnings. And even Amazon.com, though decidedly short on earnings, arguably has a proven concept. There are far too many that don't, and this is justifiably scaring the heck out of investors. Individual Investors Backing Off Yesterday's news from Schwab (SCH) was sobering. Daily average revenue trades at Schwab fell 28% in May from April even as assets rose $8.6 bln. It's not hard to read those tea leaves -- individual investors are pulling back. With the IPO floodgates having to this point remained open, the combination of declining individual investor activity and increasing IPO activity has been a brutal supply/demand combination. Our advice? Investors should do more of the same, that is to say, move to the sidelines. Money managers have to compete against indexes and remain invested, but individuals always have the luxury of stepping away from the market. Many already have; more soon will. From first-hand talks with many investors, we can say with certainty that many Net investors have simply relabelled short-term trades as investments in the expectation that those stocks will -- in fact must -- someday return to their old highs. We will see more pressure on the market as these investors finally capitulate and in some cases, as margin calls force that capitulation. The reality is that many, perhaps even most, of these stocks will never again see their old highs. Many will never turn a profit, and now that the capital markets are drying up, they might not even survive much more than another year. Remember this point -- just because XYZ Internet stock traded at $160 last April doesn't mean it was ever worth that price. And now that it's $80 or $60 or $40 doesn't mean it's worth that price either. In short, it's time to start valuing Internet stocks based on the prospects of their business rather than on a relative basis, whether that means relative to its old valuations or relative to other Net stocks. Phase 2 Briefing.com acknowledges that this second phase of the Internet revolution is now upon us. The Internet as an economic and social phenomenon is still very much alive. In fact, we believe fervently that the Net will dramatically alter our economy for the better, and that faster growth with low inflation will be the result. But that does not mean that all Internet stocks will benefit. As we have argued in several recent Stock Briefs, playing the Internet will become a game of picking winners, not picking anything. In the weeks and months ahead, we will focus less on the Internet as a monolith and more on the individual stories. In the meantime, we would advise watching the Net spectacle from the sidelines, and instead playing some old tech names like IBM or any number of solid candidates in the still-strong telecom sector. Parting Shot In the silver lining department: Wednesday's Consumer Price Index could buy the Internet sector a reprieve. Because they trade on future rather than present earnings, Net stocks are more vulnerable to rising rates. If the CPI number is tame, stocks generally and the Nets specifically will benefit. We would not, however, argue that all was well for the Internets and new highs are in store simply on the basis of a post-CPI rally. The bubble has popped; you can't unpop it.