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Technology Stocks : Altaba Inc. (formerly Yahoo) -- Ignore unavailable to you. Want to Upgrade?

To: Ken M who wrote (10226)	4/17/1998 11:04:00 AM
From: Winter	Read Replies (1) \| Respond to of 27307

From Breifing.com: Updated: 17-Apr-98 Netmania To say that the recent rush into Internet stocks is completely rational strains credibility. The momentum-driven mentality of the Net-rush now has traders sifting through the dregs of the Internet world for stocks that have missed out on the recent run. How else can you explain yesterday's surge in such past blow-ups as CKSG, SPYG, and CNWK? That's not to say that the rally in these specific stocks is unjustified, it's only making the point that the buying has become completely indiscriminate. We have seen such an Internet stock bubble before. Go take a look at the charts of Netscape, Spyglass, UUNet, and Netcom in late 1995. That bubble popped in ugly fashion early in 1996. We don't know when the current feeding frenzy will end, but when it does, you will be in much better shape if you pick the 1998 equivalent of AOL (AOL was near 20 in late 1995; it's at 75 now) rather than Netscape (85 in 1995, 25 now). In sorting out the likely winners and losers, it's important to differentiate between Internet stocks. Let's focus on just two Internet sectors today -- search engines and retailing. YHOO vs AMZN In the not-too-distant future, we will look back and laugh at the concept of an "Internet" stock. The Internet stock world is not homogeneous. Dumping such companies as Yahoo! and Amazon.com under the "Internet" banner is like combining Kimberly-Clark and the NY Times under the heading "Paper." Yahoo! is a media company and Amazon.com is a retail bookseller. Their medium is the Internet, but that doesn't mean the companies face the same challenges or opportunities. The Problem With Commodities Looking out two years, which sector -- search engines or retailing -- is the better investment? We'll choose the search engines without hesitation. We'll start with an anecdote to justify our position. Today, in our quest to buy two books, we went to the site www.acses.com. We entered our book titles and within seconds we were presented with a list of online bookstores that offered the titles, starting with the cheapest price and going up from there. We found that a store called All Direct books offered the best price, so we punched in the credit card #, and the books should be in the mail shortly. We then went to Amazon.com and found the same books listed for 23% more. We know the response to this criticism -- Amazon.com has the brand recognition. How many people have heard of acses.com or can even pronounce it? These are fair points. For now. But they illustrate the problem that Amazon, CDNow, N2K, Egghead, and other online retailers will face for years to come. They are all in commodity businesses, and while a strong brand name helps to bring in traffic now, pricing might ultimately be king. Is there any question that shopping agents like acses.com will proliferate in coming years? There might even be a shopping browser, designed only for the purpose of finding you the lowest price book, CD, airfare, PC, whatever. In that brave new world, Amazon's brand is not worth much more than that of All Direct if its prices are 23% higher. So what will it be, lower margins or less sales? No Competitive Pricing Here Now let's consider Internet media companies, of which search engines are the most prominent subset. In this world of advertising-driven revenue models, price is not an issue. Branding and content are the only issues since there is no charge to the end user. On both fronts, Yahoo! is in a league of its own. Their brand name is unparalleled and their approach to content (simple design, low graphics, high quality) keeps us all going back to quote.yahoo.com time and again. Excite, Lycos, and Infoseek are all vying for second place, but they have much lower price/sales ratios to reflect that reality, and second place in this business ain't too bad. Unlike the retailers, the search engines' margins will grow as their usage grows, and it will be extremely difficult for future competitors to challenge their brand names, and impossible for them to compete on price (it's already free!). Where To Be When It Blows Internet mania is justifiably boosting the valuations of many solid companies with bright futures, but it is sweeping many weak companies higher as well. We would never short any of these stocks given the potential for the current momentum to carry every company that utters the word Internet up 10 points per day, but this mania will eventually end, and as was the case with the buying, the selling will be indiscriminate. If you're going to take the risk of holding these stocks when the blow-up comes, you might as well own the ones that have a future. We would take the search engines over the retailers any day.