Attributed to Bloomberg........
Lycos, Excite Surge as Companies Seek Online Partners
Los Angeles, July 1 (Bloomberg) -- The second gold rush is on. Online, that is.
Speculation that AT&T Corp., America Online Inc., CBS Corp. and others may be shopping for Internet partners is driving up Excite Inc., Lycos Inc. and rivals as the big companies race to reach more customers and put their news and services on the mushrooming World Wide Web.
Companies from Internet powerhouse Yahoo! Inc. to little- known DoubleClick Inc. and MindSpring Enterprises Inc. are at records amid investor frenzy that these companies will be the next to gain a lucrative partnership or takeover offer. Walt Disney Co. fanned the flames last month with its investment in No. 3 Internet directory InfoSeek Corp.
The theory is that the pressure is on media and telecommunications companies to quickly build their presence on the Internet, where an expanding audience gives them a way to reach new customers and attract advertisers. AT&T, for example, teamed up with Yahoo! to sell its phone services online.
These companies have to forge alliances to get exposure to the next new promised land for reaching consumers and business users,'' said analyst Fred Moran at Furman Selz.
This has online companies, many of which have yet to turn their first profit, trading at stratospheric levels.
Lycos surged 6 5/8 to 82. Excite rose 6 7/8 to 100 3/8 and Yahoo! gained 12 3/8 to 169 7/8. Netscape Communications Corp., which unveiled an improved Web site this week, rocketed 8 5/8 to 35 11/16. DoubleClick, which tracks ads on the Web, surged 14 5/16 to 64. MindSpring, which connects customers to the global network, rose 5 3/8 to 108 1/4.
Spotlight
Lycos, Excite, and other directory services are in the spotlight because they serve as hubs for millions of computer users looking to navigate the Web. By linking up with the directories, media companies can funnel more consumers to their news and entertainment.
Media and other communications companies have long debated whether they should build their own Internet sites or invest in existing Web companies that already have a presence. Companies such as Time Warner Inc. and AT&T that have tried it on their own have often failed, with Time Warner's Pathfinder service falling short of expectations.
Big media and communications companies have proven they can't build it on their own and are coming to the realization that they have to partner up,'' analyst Moran said.
America Online has been on a buying streak recently, its latest acquisition the Israeli Internet messaging company Mirabilis Ltd. for $287 million.
AOL, which raised $500 million from a recent stock sale, could use its refilled kitty to buy technology such as Switchboard, the directory service now owned by Banyan Systems Inc., or to open more foreign joint ventures in Europe or Asia, analysts said.
It's clearly time to go on a shopping spree,'' said Prudential analyst Paul Merenbloom, who rates AOL a ''hold.''
Teaming Up
AT&T, meanwhile, needs to team its WorldNet Internet service with an Internet company such as Yahoo! with a strong brand name, analysts said.
The way companies are differentiating themselves and rising above the rest of the noise of the Internet is through brand,'' said Jeffrey Kagan, president of Kagan Telecom Associates in Atlanta. ''AT&T's brand name co-mingled with Yahoo! would be very powerful online.''
Netscape, the Internet software maker that's trying to expand its Web site, said yesterday it's talking to media companies including Time Warner and TV networks about featuring their content on the site.
Like the majority of the California ''49ers'' who flocked to California in the great gold rush of 1849, however, many investors may come away disappointed.
Take Netscape, more than 30 million shares changed hands this week, almost a third of the shares outstanding, indicating that investors may be looking for a fast profit rather than a lasting stake.
Further, there have been few outright purchases of an Internet company while the partnerships that have been unveiled have been less than breathtaking.
And the very appreciation of the Internet stock may preclude an acquisitions because of the high valuations companies like Yahoo! now command. Its market value is $7.86 billion, about even with that of the New York Times Co., whose annual revenue is almost 43 times that of Yahoo!'s.
With many online companies, investors ''are discounting content or the ability of these companies to generate cash flow. The investment focus is very shortsighted,'' said James Preissler, an analyst at PaineWebber.
Moreover, the prospect of consumers buying goods and services over the Internet is still ''a little immature,'' said Stan Lepeak, analyst at the Meta Group, a market research firm.
Fear
Companies are being driven by fear to pursue investments in the Internet because they don't want to take the chance of losing millions of potential revenue as the Internet grows, Lepeak said.
Do they think it's real, that they can make money? They don't want to be the one that missed out,'' he said.
CBS, for one, said it would rather team up with Internet companies than buy or invest in them.
We look at new media not as a core business but as one that we can be a partner like we have with Sportsline,'' said spokesman Jack Bergen, referring to the online sports site that CBS helps market and promote.
We are talking every day to various new media groups'' about potential partnerships, he said.
Likewise, Internet search engines are afraid that without a partnership with deep-pocketed media and telecommunications companies, they won't be able to keep up with rivals.
Like the 49ers of old, ''investors are reacting to the momentum,'' analyst Preissler said.
17:16:45 07/01/1998
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