Despite Jitters, the Internet Is Still a Rich Market, Banc of America
Securities Internet Analyst Tells Investors
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SAN FRANCISCO, Sept. 29 /PRNewswire/ -- The following is being issued by
Banc of America Securities, a member of the National Association of Securities
Dealers, CRD number 26091:
There is a lot of new money to be spent on Internet companies, especially
as Christmas nears, but the market is slightly cautious, anticipating higher
interest rates and pre-Y2K cash outs, according to Alan Braverman, head of
Internet Research, for Banc of America Securities.
(Photo: newscom.com )
There is a lot of available capital, with new money being driven by high
expectations for Christmas e-commerce spending. On the other hand, some
investors will be cashing out around Thanksgiving fearing Y2K problems,
according to Braverman. "The three most important trends to watch are
freebies, broadband, and the maturation of the industry," he said.
Braverman's comments came at the 29th Annual Banc of America Securities
Investment Conference, which runs from September 27 through October 1 at the
Ritz-Carlton Hotel in San Francisco. This former Montgomery Securities
conference bears a new name but boasts a program that lives up to its
impressive reputation. The five-day conference features 250 presentations
from companies that are driving the Business Services, Consumer & Retail,
Energy, Entertainment, Media & Telecom, Financial Services, Health Care,
Industrial Growth, Real Estate & Lodging and Technology industries.
"Although there is a lot of new money in the market, the smart money is
scared, and that condition is fascinating," says Braverman. In addition to
pre-Y2K cash-outs, Braverman says the IPO pipeline is filling up fast, and
with the increased supply comes a dampening of demand. E-commerce will drive
the market for Internet issues up as Christmas nears, but the upswing in
Internet stock prices will not be as great as last year.
Venture capital is also in great supply with the demand for investments
outstripping the supply of good companies. The IPO window of opportunity
could be shorter this year and with most of the big "sweet spots" for the
Internet already taken, investors might finally become more discriminating.
Some companies may not make it to the public market, asserts Braverman, but as
blue-chip stocks continue to rise, M&A activity will also increase.
The hottest new areas will be for unique "new to the world" products like
eBay rather than traditional "replacement" products. However, a few big
opportunities still exist for replacement products like commerce and media;
one notable area is addressing local markets.
Overall investor sentiment is also on its way up, says Braverman, but
there seems to be an increasing bias toward quality. There is a net flow of
money into the sector that will likely increase following a hat trick of what
he believes will be near-term positives: (1) Yahoo's likely positive early
October reporting (now a bell weather indicator in the Internet market); (2)
Media Metrix reporting positive industry statistics in mid-October; and (3)
further substantiation by industry researchers such as Forrester & Jupiter of
the notion that Christmas e-commerce gains could show a 300% year over year
increase.
Braverman sees a divergence between current operations and valuation. He
sees future valuation based on traditional but modified metrics with his
favorite being market capitalization to free cash flow adjusted for FCF growth
rates.
Consolidation is another near term trend, says Braverman. Natural
oligopolies will exist within and across vertical platforms, but the real
question is: who will rise to the top and who will disappear? Braverman is
watching "real world" players like The Gap and WalMart for what they'll do,
noting that many traditional companies have yet to prove their mettle.
First-tier companies such as AT&T (NYSE:T) (T, $44-3/8), NBC, Microsoft
(NASDAQ:MSFT) (MSFT, $90-7/8)*, AOL (NYSE:AOL) (AOL, $197-7/8), and Yahoo
(NASDAQ:YHOO) (YHOO, $182-3/16)* are well positioned to win over the long
term, whereas some others have yet to prove their ability to succeed in the
long-term.
The keys to a company's short-term success are pedigreed management teams
and boards of directors and advisors who not only understand their core
industries, but also understand the Internet. With exceptional management,
companies are able to see where the market is going and how to get there.
They also need loyal customers, a pool of credible and respected investors,
and a solid business model, says Braverman.
A "Class B" idea with "Class A" management, is a better formula for long-
term Internet success than the other way around, says Braverman. The ability
to capitalize on economies of scale is also essential. "First-in" status can
be crucial, as Yahoo has proven, but it is not always enough. Also, not all
business models are the same. Although Yahoo and Excite (NASDAQ:ATHM)
(ATHM, $42-1/16)* are both in the directory business, Excite has never
realized Yahoo's gross margins or economies of scale, notes Braverman.
One of the Internet trends to watch, according to Braverman, is
"freebies". Free email and gratis content are old news, but among the most
interesting new giveaways are ISP (free Internet Access) and free PCs. These
strategies will certainly move more of the mass market online, benefiting
established Internet interests, while possibly putting existing ISPs at risk.
On another front, Broadband should make the Internet "better, cheaper and
faster," and it has the potential to level the playing field. These bandwidth
issues could lead to a meaningful sea change among users, usage and uses
(Braverman's theory of the Internet's 3 U's).
The maturation of the Internet industry in terms of product lines and
management will characterize its future growth. Investors should be looking
for more seasoned companies and more seasoned executives in tomorrow's
Internet market.
Banc of America Securities LLC (BAS), a subsidiary of Bank of America
Corporation, is a full-service investment bank and brokerage firm. With
principal offices in San Francisco, New York City and Charlotte, BAS employs
more than 4,000 associates in offices around the country, and with affiliates,
offers capabilities worldwide.
Bank of America Corporation, with $614 billion in total assets, is the
holding company for one of the largest banks in the U.S., with operations in
21 states and the District of Columbia.
*Banc of America Securities LLC currently maintains a market in
Excite@Home, Microsoft Corporation, and Yahoo! Banc of America Securities LLC
was a co-manager of a public offering for Yahoo! in the last three years.
Banc of America Securities LLC has performed investment banking or other
services for Yahoo! in the last three years.
SOURCE Banc of America Securities LLC
-0- 09/29/1999
/CONTACT: Jennifer A. Smith of Banc of America Securities, 415-913-5968,
or jasmith@bofasecurities.com/
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