Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: beachbum who wrote (11323)	7/1/1999 9:38:00 AM
From: chinabull	Read Replies (2) \| Respond to of 19700

From www.Multex.com This week's top story----Part I: The Bear Takes A Swipe James Grant, founder and editorial director, Grant's Interest RateObserver Interviewed by Lauren Keyson Grant's Interest Rate Observer, a pricey newsletter for professional investors, started in 1983 with James Grant, two desks and one secretary. It is now based on Wall Street in the offices of the failed Seaman's Bank, located next to the Federal Building where George Washington was inaugurated, featuring a beautiful old paneled conference room with a fireplace and an antique pocket desk. We laughed when we realized we had brought each other a Diet Coke. While Grant's Observer is not a financial advisory, it has definite opinions on certain industries and stocks. This week at Grant's Observer the bear is out, taking a swipe at the Internet Industry. [LAUREN KEYSON] You were questioning the fact that investors are paying 100 times to 1000 times earnings for Internet companies, andrationalizing it. [JAMES GRANT] It seems to me that these technology companies are everything that their promoters insist they are, with one exception. They are not invincible -- yet they are capitalized as if they were surrounded by great medieval moats, as castles are. In fact, they are much more vulnerable than say, PROCTER & GAMBLE (PG), or even some dull cement company from the Midwest, which probably has a much longer life expectancy than do many of these arguably brilliant Internet creations. [LK] Let's talk about individual Internet stocks, starting with PRICELINE.COM. Regarding the issue where you commented on its generous valuation, what exactly did you mean by 'the company's wacky and self-aggrandizing definition of revenue?' [JG] One problem with PRICELINE.COM (PCLN) is its accounting. I wonder how many of the people and institutions that own PRICELINE.COM understand how it recognizes revenue. Its actual net revenue is much smaller than the revenue that people credit it with. That's one problem. The company is in the business of helping consumers get better prices, and in the business of helping airlines make smaller margins. It occurred to me, as it occurred to others, that many inventions benefit humanity generally, but do not benefit the people who make and sell that invention. So PRICELINE.COM is doing terrific things in many different markets and for uncounted consumers, but it's not clear that it's going to do wonderful things for its own stock holdings. Say that you believe in this technology and that the Internet-based travel services are the wave of the future. Well, in that case, you ought to look at SABRE GROUP HOLDINGS (TSG) and its own online travel operation called Travelocity. I think you will find the arithmetic of Travelocity valuation better compared to PRICELINE.COM's valuation. To me, PRICELINE.COM is a complete valuation outlier -- it's all the way over on the tail of the curve. [LK] So you are definitely bearish on PRICELINE.COM? [JG] On the stock, sure. But I am not bearish on what the company is trying to achieve. So much of that is wonderful. But that does not mean you have to become an equity investor in stocks that are overvalued, or stocks that have never been valued before. [LK] What about AMAZON.COM? Bullish or bearish? [JG] Bearish. Why would someone be bullish about AMAZON.COM (AMZN)? [LK] Because AMAZON.COM has such a thriving business and is getting into so many new areas? [JF] That's true, they're very busy people. But I can point out any number of Japanese companies that were just as frenetically busy and went down 90% in the stock market. You will say, 'Well, they were not pioneering in technology.' But AMAZON.COM is in the business of spending money, more than making it.[LK] How about CHARLES SCHWAB? [JG] CHARLES SCHWAB (SCH) is an overcapitalized brokerage firm, just like an Internet stock. Therefore, to me, it's absurd on its face. [LK] How do you feel about other online brokerages like E*TRADE GROUP (EGRP) and AMERITRADE HOLDINGS (AMTD)? [JG] Very bearish. There is a very overwrought bull market, and these are the icons to this overwrought bull market. [LK] Give me an idea of an Internet stock that you are bullish on. [JG] There was a company two years ago that was greatly out of favor. It was kind of an 'adventure capital startup incubator thing' having to do with the Internet. The stock was out of favor -- it had been down from 35 to12. It is called CMGI (CMGI). It was selling at less than the value of its holdings, and we were very bullish on it. We suggested that you long that and short ADVANCED MICRO DEVICES (AMD), because that was a hardware company that was running into difficulty with its chips. So, we're not congenitally negative on anything. We are bearish on Internet stocks, but we were bullish on CMGI because it was a compellingly valued stock, and because the reward was much greater than the risk. [LK] How do you see CMGI now? [JG] At the moment I see the risk being much bigger than the award. CMGI has gone up 15, 20, a 'jillion' fold since then! But there will come a time in our lives when the Internet is on the outs. People will begin to doubt its significance, and there will be a backlash against technology. CMGI will be cheap again. PRICELINE.COM will be very cheap. But not now.