InternetStockNews update. Fairly intersting--if long--newsletter. Mentions CMGi three or four times, once regarding a "lime CMGi comment."
1. ISN UPDATES
By Chris Agarwal
Ready to make that next killing on an Internet stock trade? Better be careful. Our suspicion is that the markets have been volatile because of a reluctance for institutional investors to dive back into the market. This past week, however, we saw large gains in the Internet sectors as well as in the Nasdaq composite as a whole. We simply attribute this to a good amount of retail and institutional investors buying back into these stocks before the end of this month when the Federal Reserve may announce an increase in interest rates. We predict a 25 basis point increase with no large reaction by the markets. This increase has already been discounted in the market indices by investors and we predict that the reaction to a 25 basis point increase will be similar to the reaction when the Fed increased rates in March of 1997: Nada.
So where do we go from here? Volume is still fairly light and we're not sure we will see a confirmation rally any time soon. However, after Alan Greenspan makes a decision regarding interest rates, we expect a good rally.
We will be watching several stocks closely.
We have recently taken an additional position in Starnet Communications (OTC BB: SNMM). We feel that this stock that we feel will be our largest point gainer in 1999. This company will report earnings some time in July and expects a Nasdaq National Market listing to be announced within 45 days. When a company goes to the Nasdaq NMS, a little helping hand comes along called institutional investment. Since Starnet is a leader in its sector and is already profitable, we expect a few analysts to get off their conservative butts and consider the online gaming industry for a change. Recently this stock has formed a base pattern and today we have seen some selling. Next week, we will be visiting the Online Gaming Expo in Vancouver which happens to be sponsored by Starnet. Starnet is giving tours of its office to everyone at the gaming expo and, if all goes as planned, we may see a run-up in the stock price as early as next week and continuing into the week after thousands of investors are introduced to this CMGI of the online gaming industry. We expect a $1 billion market cap to be placed on any leading company within the various Internet sectors that is traded on the Nasdaq National Market. As Starnet trades at around a $300 million market cap with the stock price around $12 per share, a $1 billion market cap would imply a $40 share price or a 233% upside for their stock price. We started following Starnet in December of 1998 at $1.50 and are still very bullish on this company.
Other stocks that we will concentrate on in anticipation of a rally in July are CMGI, which now trades at a reasonable Price-to-Earnings Ratio which still undervalues the potential value of their holdings, DoubleClick, Excite@Home, and Inktomi. Just like Starnet, these are leaders within their sectors. When the markets heat up, these stocks light on fire. Others which may see a boost in July are Lycos, E*Trade, and the recent Latin ISP IPO, StarMedia.
As for our ISN Microcap Internet stocks, we will be watching mPhase Technologies (OTC BB: XDSL) over the next few weeks. mPhase recently performed a private placement offering and we would expect the company to seek a Nasdaq small cap or national market listing in the near future. The company recently received coverage initiation by Investec Ernst & Company who stated a possible comparable valuation at $11 per share this past week. We hold a position in this company and expect even more institutional coverage when the company's stock starts trading on the Nasdaq exchange.
Check out the company's institutional coverage below:
biz.yahoo.com
We will also be watching Information-Highway.com (OTC BB: IHWY) over the next month. The company has experienced quite a hit in its stock price as ISP's have become out of favor in the short term. Stocks such as AOL, Mindspring, and Earthlink have come way off their highs. However, this company is performing a private placement offering and, with a cash infusion, we may start to see some big news out of the company.
Another company that has made headway in working towards a NASDAQ listing
and institutional sponsorship is billserv.com (OTC BB: BLLS) which filed a
registration statement with the SEC. Check out the news below:
biz.yahoo.com
As always, be smart, be aggressive, but be careful. As there are some 200 publicly traded Internet companies these days, look for leadership within the sectors.
Don't forget to read Chirag's article on ISP's battle for leased access in section 3 of this week's ISN. We urge you all to e-mail the FCC and ask for leased access so you too can have high-speed Internet access!
2. ISN OUTLOOK
By Ted Kunzog
Much of the week, the markets continued mostly lower. Wednesday, the NASDAQ inexplicably had its largest point rise ever, rising 103 points while the DJIA rose 190. Expecting the worst on Thursday, the markets continued to rise after Federal Reserve Chief Alan Greenspan promised to deliver what was feared most: higher interest rates. In prepared testimony to Congress' Joint Economic Committee, Greenspan gave his clearest warning yet the Fed was poised to hike interest rates: “It is useful to preempt forces of imbalance before they threaten economic stability. When we can be preemptive we should be, because modest preemptive actions can obviate the need of more drastic actions at a later date that could destabilize the economy.”
Could he have been less clear: a ¼ point hike in interest rates when the Fed meets again at the end of June? Luckily, interpreting Internet Stock News requires less of a talent for the arcane!
Amazon.com, Inc. (Nasdaq: AMZN) had an excellent week. The firm entered into an alliance with Sotheby's Holdings, Inc. (NYSE: BID) to launch a joint online auction site, sothebys.amazon.com, featuring antiques and collectibles. Amazon.com also agreed to invest in Sotheby's approximately $45 million. Perhaps disappointing to fans of the MP3 format, Amazon.com agreed to market music in its online music store with digital downloads of full-length songs using Liquid Audio software and services.
Continuing its search for high speed Internet access, America Online (NYSE:
AOL) announced an expanded alliance with Compaq Computer Corporation (NYSE:
CPQ). Under the agreement, new Compaq Presario Internet PCs will be equipped with Digital Subscriber Line (DSL) ready modems and will prominently feature pre-installed AOL software that will include special programming and features for broadband users. Credit AOL with being friendly; I'm far more likely to buy a computer with preloaded software than one with a Lycos icon BURNED in!
If you're worried how far your Excite@Home Network (Nasdaq: ATHM) stock has fallen, relax! The company announced they completed their previously announced 2-for-1 stock split.
CMGI, Inc. (Nasdaq: CMGI) further endeared themselves to smaller investors this week with the announcement they would offer shares in companies they spin off to investors at the IPO price. The first will be the IPO of CMGI's Engage Technologies subsidiary. Individual CMGI shareholders who own at least 100 shares of CMGI Common Stock at the close of business on June 15, 1999 and meet certain eligibility requirements will be invited to participate.
DoubleClick Inc. (Nasdaq: DCLK) and Abacus Direct Corporation (Nasdaq:
ABDR) announced that the companies have signed a definitive merger agreement in a transaction valued at $1 billion. The stock-for-stock transaction will create what they claim will be the worldwide leader in online advertising and database marketing.
Shares of online auctioneer eBAY (NASDAQ: EBAY) plunged following a 22 hour outage over the weekend that disrupted trading activities. The outage will reportedly reduce the company's sales by $3-5 million in the current quarter. Perhaps worse than the initial loss is the frustrated customers that my take business elsewhere.
Inktomi Corp. (Nasdaq: INKT) announced what they call the Web's first customizable, automated Directory Engine. The Inktomi Directory Engine uses new technology which leverages human intelligence to categorize millions of documents within an automated Web directory. The new offering allows portal sites to blend in their own unique content and integrate advanced Web search and shopping capabilities into a single seamless solution, making searches quicker and easier.
Network Solutions, Inc. (Nasdaq: NSOL) and InfoSpace.com, Inc. (Nasdaq:
INSP) announced a marketing agreement that allows Network Solutions and their ISP partners to provide their customers with the ability to instantly build a portal using InfoSpace.com's content and commerce solutions. This agreement combines the companies' content, commerce and promotional services to make it easy for businesses and individuals to establish their Internet identities and quickly build and promote their Web sites. Talk about a competitive advantage! Who would know more about the needs of a company planning to start a web presence than NSOL – who probably registered their domain name?
The Charles Schwab Corporation (NYSE: SCH) was a major contributor to brokerage stock weakness last week. The firm released its Monthly Market Activity Report which noted (of most concern) that “Customer daily average revenue trades were 150.0 thousand in May 1999, down 28% from April 1999.” It was assumed by many that if Schwab could not sell stocks, no one else could either, so the whole group fell.
NBC and XOOM.com, Inc. (Nasdaq: XMCM) announced that NBC has agreed to invest an additional $25mm in XOOM.com shares. NBC is also furthering its commitment to XOOM.com and the pending NBC Internet (NBCi) deal by accelerating a $30M cash investment from the initial announcement, bringing its total investment to $55M in cash equity at an average price of $57.30/share.
I have warned in the past about a potential worsening of the correction in the NASDAQ Composite to below 2039.17 if the 2345.61 level is broken first.
I would change my mind about the correction if five things were to occur:
A new high above 2652.05 accompanied by heavier than normal volume, greater than three to one advancing issues over decliners and the number of issues making new high being greater than the number making new lows (new lows must also be less than 25). I expect the bottom in the markets before the end of July. Smart investors should have completed their purchase of bargain priced Internet stocks by then!
Below are some of this week's top stories:
Amazon and Sothebys biz.yahoo.com
Amazon Liquid Audio biz.yahoo.com
AOL – Compaq DSL deal biz.yahoo.com
ATHM completes stock split
biz.yahoo.com
CMGI IPOs to shareholders biz.yahoo.com
DoubleClick merger biz.yahoo.com
EBAY outage
dailynews.yahoo.com
Inktomi Directory Engine biz.yahoo.com
INSP – NSOL alliance biz.yahoo.com
Schwab monthly highlights
biz.yahoo.com
NBC accelerates XOOM biz.yahoo.com
3. ISP'S QUEST FOR LEASED ACCESS: THE BATTLE OVER BROADBAND DOMINANCE by Chirag Amin, M.D.
As the demand for high-speed Internet access continues to grow among the millions of Internet users nationwide, a new frontier of Internet technology is upon us. With cable Internet access being able to provide its users with connection and download speeds that are over 100X greater than that which can be obtained though dial-up Internet access over conventional phone lines using a 56K modem, many Internet users patiently await the widespread availability of this technology. Nevertheless, although there currently exists many carriers of high-speed Internet access, the vehicle of this broadband transmission, the coaxial cable line, has become an extremely valuable commodity. Because of this, a major struggle has emerged between cable companies and high-speed Internet service providers (ISPs). These ISPs, which now number over 5,000 in the U.S. alone, want to provide all cable households their high-speed Internet access. However, the cable companies want to exclude these ISPs from using their cable lines, in attempts to only allow cable users to use their version of broadband Internet access.
One of the most salient culprits that that is trying to keep their cable lines closed to existing broadband ISP competition is AT&T, which, through its multi-billion dollar cable company acquisitions of TCI as well as MediaOne, now controls over 25% of the existing cable infrastructure in the U.S. Since AT&T also has a large stake in high-speed Internet access provider Exite-AtHome, it has been in their best monetary interest to keep competing high-speed ISPs off of their cable lines. In doing so, AT&T, as well as other existing cable companies, have created a virtual monopoly, limiting consumer choice in this deregulatory political environment. And just like in any economic sector, monopolies destroy competition and prevent freedom of choice, and eventually result in consumers paying more for less services.
ISPs, in attempts to reach a “win-win” compromise with the existing cable companies, have proposed to the FCC the concept of “leased access”, whereby ISPs pay cable companies a nominal but fair fee to utilize their cable infrastructure, allowing cable users to choose among various high-speed Internet services, promoting lower prices and more value-added consumer services.
This battle is currently being fought at both the state and federal court levels. Just recently, U.S. District Court Judge Owen Panner ruled that the existing cable companies must allow rival Internet companies in the Portland, Oregon area access to its high-speed cable lines. Although AT&T is currently attempting to appeal this decision and have it overturned, this battle is continuing to heat up all over the nation.
An important point that is worth repeating: Leased access is not a “free
ride.” In fact, local ISPs are willing to pay the fees required under
existing law for leased channel video programming, fees which are
comparable to those now received by cable from other leased access
programmers. Leased access for ISPs will cost the cable operator nothing
 no additional investment in their systems by operators is necessary for this technology; ISPs will provide subscribers with all required equipment.
As a fellow ISN subscriber, I urge you all to e-mail the FCC (e-mail address: fccinfo@fcc.gov) and make your voice be heard regarding your support for Leased Access. Below, I have written a sample letter, which you can copy and send on your own behalf. As consumers of the Internet as well as active participants in the current Internet revolution, it is important that we all make our opinions publicly known, in order to ensure our own freedom of choice. Thank you for your support.
Lobbying Letter to the FCC for Leased Access
Docket Number: CSR-5407-1
(Be sure to include this in your e-mail; also include it in the subject line of your e-mail)
Re: Leased Access for ISPs to utilize cable lines to provide unrestricted,
competitive High-speed Internet access to Internet users
To Whom It May Concern:
My name is ________________________, an I am an ISN subscriber, an Internet investor, as well as an avid Internet user. The reason for this correspondence is to convey my support for Leased Access for Internet Service Providers (ISPs). I wholeheartedly support Leased Access to allow regional ISPs access to the high-speed cable infrastructure, which will not only promote a healthy, competitive market, allowing Internet users freedom of choice for high-speed Internet access, but will also facilitate the rapid deployment of Internet services for business and commerce growth.
I do believe that by restricting cable access to various ISPs, cable companies are not only denying consumers' the freedom of choice, but also are seriously threatening the growth of the Internet as we know it – all for their own selfish monetary gain.
I feel that Leased Access, by allowing cable companies to charge a fair and nominal fee for ISPs to lease access channels from them, is a viable solution to this problem. It not only ensures Internet consumers the freedom of choice for their broadband Internet services, but also is a fair compromise allowing both parties to benefit from the continued growth of the Internet.
Please take these views into consideration in attempts to make the best decision for all parties. Thank you for your time and consideration.
You can also send a letter by regular mail to the following address:
Office of the Secretary
Federal Communications Commission
445 12th St., S.W.
Washington, D.C. 20554
Attn: Cable Services Bureau
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