These people pumped all the time
To: Lizzie Tudor who wrote (47609)
From: Glenn D. Rudolph Saturday, Mar 27, 1999 8:09 PM ET
Reply # of 115235
BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
mailto:Keith@rsco.com
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March 26, 1999
The Web Report ˆ Volume 2, Issue #12
This week, the NETDEX index closed at a new high of 905.95, up 3.2% from
last week and up approximately 581.4% over the same period last year.
For comparison, the NASDAQ ended the week down 1.1% from last week, and
up 35.3% from the same date last year.
Our benchmark for valuation remains those non-Internet companies that
have been around long enough to allow calculation of value based on
current earnings. This week the market capitalization of the 67
companies in the NETDEX index is approximately $313 billion. This
compares to the top 20 media companies, which have a combined market
capitalization of approximately $496 billion. In the retail category,
Wal-Mart‚s market capitalization is approximately $214 billion.
REACHING NEW HIGHS - With the broader stock indexes, from the Dow to the
S&P 500, reaching new highs, we wonder whether or not Internet stocks
are more or less risky today. Generally, the Internet stocks seem to
move down faster than the broader averages, but recover faster and
farther. In other words, the volatility has been generally worth the
pain. We expect stronger, positive surprises in March quarter reports
for Internet companies than for most other technology companies.
However, this is one of those times in the quarterly or annual cycle for
these stocks that we find it harder to find compelling trading reasons
to buy more than a few stocks. That does not mean we have lost faith in
the overall market or the Internet stocks. In fact, the U.S. economy
appears to be growing more productive with the help of technology,
including the Internet.
HOW BIG IS AOL? - Even with some of the best positioned companies, like
AOL, where we expect strong March quarter results, we wonder whether or
not reporting season will be enough of a catalyst to push the stock to
new highs. Other catalysts could include cable deals and/or more
acquisitions, although we don‚t expect these to be imminent. However,
AOL has a history of sneaking up on us. For example, it may not be
obvious to many how big AOL has become outside of its base of 16 million
members. According to Media Metrix, AOL.com and Yahoo! reached roughly
the same number of unique users at just over 31 million in February.
AOL‚s hottest web-based service is ICQ, a small acquisition, which has
posted dramatic growth to over 28 million users. The ICQ application
alerts you when your friends are also online, allowing you to send
instant messages back and forth. It is a small piece of software
downloaded into your and your friend‚s browsers. The ICQ client could
end up being a key driver of activity on AOL‚s Web properties because it
is persistently available to users with or without a browser open,
serving as the on-ramp for PC users switching from spreadsheets to the
Web. ICQ can be used in offices to replace intercoms. AOL has provided
Buddy Lists, a similar application within the core network. With ICQ,
you can be reached at work, not just at home; ICQ steals more time for
the Web away from other activities. While ICQ is a separate brand, it
connects you to the AOL network, potentially allowing instant messages
like pages, stock quotes, and other applications. This constant
addition of more services from AOL highlights the growing importance of
its network and the defensibility of its position.
YAHOO! & BROADCAST.COM? - If Yahoo! buys Broadcast.com, would that be
good or bad? We have been concerned that Yahoo! may be challenged to
grow its services fast enough internally to evolve from premier portal
to an AOL-like network. Given its currency, we believe almost any
acquisition would appear additive to earnings sooner than later. While
Broadcast.com has a higher cost of goods sold than Yahoo!, because it
needs more capital equipment for its broadcasts, with Yahoo! it could
cut marketing costs. We have wondered if Broadcast.com could grow into
its valuation on its own, even with eventual broadband access making
more people wanting audio and video broadcasts. At work, where speeds
are already faster, we don‚t expect people to be listening to the Web,
which would cause management challenges. For professionals,
Broadcast.com provides outsourcing capabilities for Web broadcasts of
business presentations from investor conference calls to conferences.
Outsourcing has proven a very profitable business model in the rush to
the Web. Long-term, we believe Broadcast.com would have a more
defensible model as part of Yahoo! than alone, and Yahoo! would be
better off adding as much content and service as possible. We would
still not want to buy much more Yahoo! today, but would hold it
regardless.
CONFUSED MONSTERS - We admit our last few e-mails have felt repetitive,
but after the recent run in the group, we find few stocks that we want
to accumulate now. We look for confusion that we expect will be
resolved within a month or so, providing a positive catalyst. At Lycos,
we are actually encouraged that the stock has languished, allowing
investors the opportunity to continue to accumulate. At Amazon.com,
seasonality and price competition seem to have distracted investors from
the value of the company‚s growing audience and fulfillment
capabilities, in our opinion.
NSOL COMPETING STRONGLY DESPITE CONCERNS - Regarding Network Solutions,
we‚re surprised that many investors seem to remain confused about the
impact of regulatory changes on new competition, which we firmly believe
will be negligible. Within a week or two, we expect the changes to be
finalized, followed by NSOL‚s report of a big quarter, which we expect
will help stabilize the stock and bring it to new highs. We are still
unaware of any large competitor planning to step in that would change
our optimistic stance on the stock. Deutche Telekom and France Telecom
have suggested they may participate. We believe a few domain name
resellers like Register.com and Namesecure will probably apply for
registrar status, but none of these very small companies seem capable of
approaching NSOL‚s marketing muscle. It is possible that large companies
like AOL or Microsoft may consider becoming registrars, although we
believe that is unlikely. AOL already has a marketing deal with NSOL
with Netscape, and we doubt Microsoft wants to enter a highly regulated
business. Fundamentals seem to be improving in the opposite direction
of perception. The key challenge seems to be keeping customer service
improving a bit faster to keep up with registration and service growth.
BASKETBALL BOOSTING SPLN - Regarding SportsLine, the stock seems to be
resisting reaching new highs, with investors perhaps wondering whether
or not it will catch, beat, or lag behind ESPN. We expect it to close
the competitive gap in March, with the help of CBS promotion on college
basketball shows. We blelieve SportsLine stock continues to waffle with
concerns about its competitive position. We believe results in the near
term may push SPLN into a new category of stocks that appear to be
shedding competitive concerns and achieving faster growth. Recent
examples of new members to this club include CNET and Network Solutions.
E-Tailing Update ˆ Lauren Cooks Levitan 415-693-3309,
mailto:lauren@rsco.com
ECLIPSE FOR E-TAILING STAR: We‚ve said it before, but we‚re going to
say it again: We are confident that Amazon is on track to show
sequential revenue growth during Q1. We believe recent concerns
regarding Amazon‚s post-Christmas business trends and the company‚s
ability to successfully compete with the aggressive pricing strategies
of other e-tailers will prove unfounded. Despite a 4% drop in
Amazon.com‚s number of unique users in February, after a 1% drop in
January, according to Media Metrix, it is important to note that these
declines were off of a huge jump up in the month of December. Therefore,
we still expect Amazon to report 10-12% growth in the unique user base
for Q1 over Q4. This growth is consistent with our Q1 sales assumption
of $260 million, a 3% increase from Q4. Keep in mind that unique users
do not equate directly to sales given varying trends in purchase rates
and average transaction size. Also keep in mind that Media Metrix does
not include international users which have historically represented a
substantial part of Amazon‚s business. We continue to be surprised by
the strength of Amazon‚s brand and its being virtually synonymous with
online shopping. As also reflected in the February Media Metrix
results, Amazon continues to attract nearly a quarter of all Web
shoppers even as the Web shopping population grows dramatically.
Recognizing that only the announcement of Q1 results will dissipate
these concerns, we recommend purchase in advance of its earnings
release, likely in the third week of April.
RETAILERS WHO CAN‚T BEAT ŒEM, MUST JOIN ŒEM: We believe it‚s crunch
time for retailers to establish a presence on-line. We believe the
winners will be the first to achieve dominant market share in a new
sector, such as consumables. Spin-offs from retailers make the most
sense to us, such as iTurf‚s (Delia‚s) bid to capture share of the teen
apparel market. However in some cases, we think aggressive e-tailers
can capture first-mover advantage and the spin-offs could miss their
window of opportunity. We believe barnesandnoble.com will struggle in
its attempt to catch Amazon, as will other retail spin-offs in
categories where Web-grown e-tailers have the first-mover advantage. In
those cases, we believe the traditional retailers must acquire in order
to compete, though this strategy could be too little too late. We
anticipate a frenzy of activity amongst e-tailers of prescription drugs
and wellness products. We lack enthusiasm for retailers such as Phar-Mor
drugstore, which announced it will link its site with Greentree.com, a
content and wellness products e-tailer. In this category, we think
retailers need to think bigger, like Drugstore.com and PlanetRx.
Drugstore.com has strategically aligned itself with Amazon, and although
PlanetRx is still very early in the game, we expect the company to focus
significant resources on this big new market. We are convinced that
timing and focus are crucial to achieving critical mass and becoming a
big player. We expect very few winners to emerge in e-tailing, which
has been the case for traditional retailing. |
