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To: Jan Crawley who wrote (10027)	7/11/1998 4:33:00 PM
From: llamaphlegm	Respond to of 164684

Barrons and Business Week: The pig pile continues. CLICK HERE FOR WACKY VALUATIONS The latest buying frenzy overinflates most Net stocks' potential Just when you thought Wall Street's worship of the Web couldn't get any wackier, Internet stocks take off again--on another gravity-defying streak. Look at Yahoo! Inc. In early June, its shares sold for $104, 12 times its initial-offering price in 1996. From there, it streaked to a record of $199 on July 6 before settling down to $186 on the 8th--leaving it with a market cap somewhere north of $9 billion. This for a company that analysts say might earn 45 cents a share. That translates into a price-earnings multiple of 413. Still, Yahoo! is practically a blue chip compared with other Net issues: At least it has earnings. Many of the shares enjoying similar runups don't even have much in the way of revenue. So, why the latest outbreak of Web mania? One factor, say analysts, is that small investors are piling into Internet-related stocks almost indiscriminately in an attempt to catch the next big wave. In the process, they are sending small-cap issues into uncharted regions at mind-boggling velocities. Take Inktomi, a provider of search-engine technology for companies that include Microsoft Corp. Its shares traded publicly for the first time on June 10 at 18. Now, it's trading at 73 1/2. All sorts of Internet-related stocks have been on a similar course, driving the Hambrecht & Quist Internet Index from 141 on June 1 to a record 208 on July 6. The new prices have even enthusiastic analysts scratching their heads, trying to come up with valuation methods to explain them (page 34). ''If there is a valuation model, it's so obscure that it defies me,'' says Andrea Williams, an analyst at Volpe Brown Whelan & Co. But there's something more than investor frenzy at play. While current valuations will almost certainly prove unsustainable--some of the surge is driven by speculation about takeover deals that may never come off--beneath all the froth is the recognition that, at least for some well-positioned companies, the Web is about to start delivering profits. By 2002, there will be 62 million households online, and consumer E-commerce will hit $22.6 billion a year, according to Forrester Research Inc. That means the Web will finally emerge as a mass medium for information, entertainment, and E-commerce. And companies that now operate popular ''portals'' or that have proven their ability to sell online are set to start reaping the rewards. SOLID SUBSET. Yahoo!'s recent climb, for instance, was inspired by analyst predictions that the company would beat projected 9 cents per share earnings (before charges) in the June quarter. On July 8, Yahoo! reported pro forma results of 15 cents per share. ''A subset of the very many Internet companies are real companies building real businesses,'' says David V. Crowder, a managing director at NationsBanc Montgomery Securities. ''Yahoo! has grown faster and become profitable much more quickly than people thought it would.'' Indeed, Yahoo! has evolved into the Net's top portal, drawing more than 40 million users a month. It keeps them coming with free E-mail and other goodies--and advertisers who want to reach them follow. Yahoo! also gets E-commerce revenue. The result: Analysts predict earnings per share to jump to 75 cents on revenue of $229 million in 1999. Who else will be able to deliver profits as well as promises on the Net? In addition to Yahoo!, Amazon.com and America Online have carved out strong positions. Online titan AOL is now the single most traveled route to the Web. And Amazon has emerged as the most adept cybermerchant. The online bookselling pioneer has branched into music CDs, and analysts anticipate moves into toys and videos. Revenue is projected to reach $1.3 billion in 2001, the year it sees profits, with earnings of 86 cents a share, predicts Jamie Kiggen, an analyst at Donaldson, Lufkin & Jenrette Inc. But BancAmerica Robertson Stephens analyst Keith Benjamin says that even the top companies are overvalued by his generous yardstick--selling for more than 50 times his estimate of their earnings per share in 2001. Amazon's stock has almost tripled since June, to 114 1/8 on July 6, before falling back to 107 on July 8. This gives Amazon a market cap of $5.3 billion. That compares with Barnes & Noble Inc.'s market cap of $2.9 billion on revenues of $2.8 billion last year. Can those values hold? Not likely. But, now, any company that can identify itself with the Web has a winning stock--from Audio Book Club to Zapata Corp. On July 6, fish processor and food-package-material maker Zapata said it would split into two companies, with one focused on investing in Net sites. Zapata shares doubled, to 21 1/2, in one day--even though, Montgomery's Crowder points out, it really isn't in the portal business--it just plans to be. BIG BETS. ''Portal'' is the magic word, however. With media companies on the prowl for portals to the Web, investors hope to cash in on those deals. NBC kicked off the rush on June 9 when it bought 19% of Snap!, a portal site put together by Internet news publisher CNET Inc. The next media company to bite was Walt Disney Co. On June 18, for $70 million and its controlling stake in Web site publisher Starwave Corp., Disney acquired 43% of Infoseek. Now, investors are placing bets on who will be next. Netscape Communications Corp. shares leaped 53% on July 1-2 after an exec told a TV interviewer that the company was talking to media companies about publishing content on its Netcenter, giving it more portal potential. And shares of Lycos Inc., the No.4 search engine, have risen as the company negotiates with major media companies, including CBS and Time Warner Inc. But nothing is imminent, say sources close to the company. But many analysts warn that the deal angle may be a sucker bet. Prices have already risen so high for portal plays that outright buys have become prohibitive. Once that sinks in, valuations of such companies could begin to drift down--which has some investors shifting their focus to E-commerce, where profits may come sooner. A new joint study from International Data Corp. and RelevantKnowledge Inc. says that by 2002, half of the 102 million people in the U.S. who use the Net at home will be shoppers. So investors are turning to cheaper E-commerce stocks. Those include music retailers CDnow Inc. and N2K, both valued at less than two times 1999 revenues, vs. almost nine times for Amazon, says Volpe's Williams. ETrade has also been left behind because of concerns over rising competition in online brokerage. But Anurag Pandit, portfolio manager for the $600 million John Hancock Emerging Growth Fund, says ETrade is a category leader: ''They're redefining the process of investing.'' For now, however, you can forget fundamentals. What is lofting Internet stocks--and could quickly bring them back to earth--are forces within the equity markets. Most basic are the laws of supply and demand. Investors continue to chase a scarce supply of shares. Excite, for instance, has 7 million publicly-traded shares. That makes for a lot more volatility than, say, Disney, which has 671 million. The small float exaggerates short squeezes, too--when short sellers scramble to cover their positions and push prices up. In June, short interest in Amazon hit 8 million shares--out of about 16 million. Another huge force: institutional investors. Ominously, some have been selling Internet shares recently. ''The group has gone to valuations that aren't sustainable,'' says Michael P. DiCarlo, a partner at DFS Advisors, which holds AOL, CDnow, and E*Trade, after taking profits in Lycos and Infoseek. How far could Internet stocks fall? Some analysts are bracing for a 20% to 30% correction after second-quarter earnings announcements. That could induce the flip side of this stock-buying mania--Web depression. By Heather Green in New York, with Amy Cortese in New York, Paul Judge in Boston, and Robert D. Hof in San Mateo RELATED ITEMS CHART: Plenty of Lift CHART: Beyond the Euphoria, Value? COMMENTARY: NET STOCKS: IT'S A MAD, MAD, MAD, MAD MARKET businessweek.com@@I72B6GYAOtRykwEA/premium/29/b3587080.htm

To: Jan Crawley who wrote (10027)	7/11/1998 4:34:00 PM
From: llamaphlegm	Respond to of 164684

COMMENTARY: NET STOCKS: IT'S A MAD, MAD, MAD, MAD MARKET Finance 101 tells us that stocks are almost always rationally priced--the theory that all information about companies and their prospects is incorporated into prices. But some investors looking at sizzling Internet stocks such as Yahoo!, Excite, and Amazon.com come to one of two conclusions: Either the market in its collective wisdom knows something about these companies that escapes the average investor, or the theory is just bunk. Certainly, most of the tools investors use to value equities don't work here. Price-earnings ratios? Many don't have earnings. Price-to-book value? Book value is a meaningless number in a business where fixed assets are scant and accounting convention doesn't value cyber real estate. Cash-flow models work well on mature companies with low capital expenditure needs, but usually don't on fast-growing tech companies. OVERPAYING. Some folks might feel more comfortable paying for a company, such as Yahoo!, that is currently profitable--rather than for one that isn't, such as Excite. But that may be a false sense of security. Look at Yahoo! Wall Street analysts are forecasting profits of 45 cents a share this year and a five-year compounded annual growth rate of 57%, according to Zacks Investors Research. If the seers are right, that 57% growth rate puts Yahoo profits at $4.29 a share in 2003. At the current price of 186, the stock is trading at 43 times projected earnings five years from now. That's nearly double the p-e ratio for the Standard & Poor's 500-stock index, based on the next 12 months' earnings. Are investors overpaying earnings of the Internet companies? It sure seems so. That's why small company investors such as James L. Callinan of Robertson Stephens Emerging Growth Fund prefers using the price-to-sales ratio. On that count, Callinan says Yahoo! sells at 80 times what the last quarter's sales figure would be if annualized. Excite, which is not expected to turn profitable until late next year, comes in at a relatively modest 12 times sales. Callinan notes that Yahoo!'s forecast revenue growth rate is 200%, compared with only 100% at Excite. But is the faster rate worth more than six times as much? Price-to-sales has its shortcomings, too. Excite might be a steal compared with Yahoo!, but who's to say 12 times sales isn't too high? Buying the cheapest company in an overvalued industry is no guarantee of getting a winner. ''Yahoo! gets a premium price because it's the market leader by a long shot,'' says Paul Cook, portfolio manager at Munder NetNet Fund. ''Not all the search engine companies will survive.'' Nor is there a guarantee that Yahoo! will stay on top. Emerging technology industries can turn on a byte, leaving today's sparkling business plan looking like yesterday's lunch. Three years ago, Netscape Communications Corp. went public and shot to 84 times sales--higher than Yahoo!'s current valuation. Aficionados bragged that it would eclipse Microsoft Corp. As if. Once Microsoft set its sights on the new kid on the block, Netscape's hot hand turned to ice. There's no doubt that, as an industry, the Internet has huge potential. But the bottom line is how much investors will pay in today's real dollars for tomorrow's yet-to-be-determined profits. Perhaps the market's extraordinary valuations on the Internet companies are rational. But it will take years at least before we know. The penalty for being wrong, especially for those buying at today's prices, will be severe. By Jeffrey M. Laderman Return to main story businessweek.com@@I72B6GYAOtRykwEA/premium/29/b3587083.htm

To: Jan Crawley who wrote (10027)	7/11/1998 4:54:00 PM
From: umbro	Respond to of 164684

"Burn, Baby Burn" The title of an article in this weekend's SF Chronicle covering a new book called "Burn Rate", which is ... hmmm ... let's just say critical of some rather high profile Silicon Valley start ups: sfgate.com No direct mention of Amazon.com in the article, but the author did have a few things to say about the wunderkind venture capitalist John Doerr, who between himself and VC firm Kleiner Perkins owns a good percentage of AMZN. Here's what the author had to say: - Venture capitalist John Doerr. ''More and more, Doerr was thought to be a combination of (former junk bond financier) Michael Milken and agent extraordinaire Michael Ovitz. . . . (Doerr) was a financier, fixer, networker, guru, all-around string puller.'' -- @Home Networks. ''A classic Doerr creation. It wasn't so much a good idea or a bad idea; rather, it was, like an Ovitz blockbuster, so full of stars that it would be big even if it was bad.'' and a few other quotes: -- America Online. ''AOL recast itself as America's gateway to the Internet, which was fairly audacious considering that you couldn't get to the Internet from AOL.'' -- Microsoft Network. ''By the summer of 1996, Microsoft was coming to terms with its first substantial blunder in cyberspace. Or, actually, in fact its second. Its first was to ignore the Internet altogether.'' -- Yahoo's ''estimated $9 billion market value doesn't make one bit of sense to me, there is nothing there.'' and bears, remember, if you want to order "Burn Rate", the proper URL is: shop.barnesandnoble.com ($18.95 at B&N, including shipping - $21.95 at Amazon.com. The B&N page has a sample chapter. AMZN does not.)