Well Don,
I see why they released those earnings on a Friday after the close!
I don't think the Zone's are that small. I buy from them all the time. They are VERY big.
Got this today via E-Mail. Thought you might be interested. Time to go get me some Pop Tarts.
BANCAMERICA ROBERTSON STEPHENS
August 7, 1998
The Web Report #32
We believe this is the right time and right price level to be more aggressive buying
Internet stocks. The ISDEX average fell another 9% this week, brining the two-week
decline to 19%. With reporting season just ending, the ISDEX has already fallen
approximately 25% from its most recent high of around 170 in mid-July, compared
to the NASDAQ, which has fallen approximately 5% during the same time. This fits
with our investment strategy, which assumes a 20-30% drop in the Internet stocks
after quarterly reporting, followed by recovery in anticipation of the next round of
positive fundamental news. We expect the stock group to end the year at new
highs, based on seasonal up-tick in traffic, advertising and commerce, starting in
September. We expect further positive revenue and a few EPS surprises for the
September and December quarter, which should allow us to keep raising price
targets. As such, we would not be surprised to see the average up 50%+ between
now and December.
>From the end of January 1997, the ISDEX gradually declined 38.5% by the end of
March 1997 to close at 70.08. While there was no fundamental bad news, we would
suggest the stocks were just taking a break after the first series of successful IPOs
in 1996. During this same time period, the NASDAQ declined approximately 11%,
and the S&P declined around 4%. The NASDAQ and S&P recovered over the next
2 to 3 months, however the ISDEX took 5 * months to fully recover to the same level
it had been at January 31st. On October 15th 1997, the ISDEX closed at 114.67
compared to a close of 113.91 as of January 31st. However, after companies
reported earnings for the September quarter, the ISDEX began to drop back down,
declining almost 20% over the next two months, before beginning to fight back
again. Over this same time period, the NASDAQ dropped approximately 11%.
CQ1:98 was marked by steady growth in the ISDEX and by the time CQ1 results
were announced, the ISDEX had climbed 85% from mid October, helped by strong
results, to an all-time high of approximately 171. Once again, however, the ISDEX
took a correction, falling off 25% this time over the 2 months following the end of the
quarter, before recovering completely just in time for CQ2 results.
We expect this pattern of rest and recovery to repeat itself again and believe this is
the right time to aggressively buy selected stocks. We would recommend starting
with the biggest, if not best franchise - America Online. We believe AOL may now
deserve the highest rank among large capitalization companies by virtue of its well
above average growth rate, as illustrated in the table below.
If the table below isn't formatted correctly in your email browser, please open the
word document attached or visit the website at www.internetstocks.com.
COMPANIES OF MARKET CAP GREATER THAN $20 BILLION
Historic
Market Cap 5-Year Rev 1999E
(M) Growth P/E
Microsoft MSFT $262,271 32% 50x
Intel INTC $147,552 34% 24x
Cisco Systems CSCO $102,874 81% 46x
Eli Lilly LLY $74,959 6% 30x
Disney DIS $67,858 26% 29x
Warner-Lambert WLA $59,400 8% 38x
Compaq CPQ $53,601 41% 20x
Motorola MOT $31,401 18% 28x
Oracle ORCL $24,942 38% 22x
America Online AOL $27,059 50% NM
Source: FactSet and BARS Estimates
There have been few opportunities to buy AOL on pull-backs and during inflection
points in the story. We see the company well along a path to higher levels of
profitability and more positive EPS surprises, as we just saw this quarter. We
expect a full fall season on news related to new products, broadband service
rollout, international expansion, and other items to provide multiple positive
catalysts for the stock. Leverage on relatively fixed marketing and overhead costs
could be significant. While we significantly raised our forecasts after the
conference call earlier this week, we believe there could be considerable upside
even from these new levels, based on impact from international, CompuServe and
potentially other commerce deals. We rate the stock STRONG BUY.
Next, we would recommend looking for stocks with near-term catalysts, such as
anticipated news or upcoming promotions. For example, E*Trade is just starting
aggressive media promotion for Destination E*Trade, which we hope will help both
its account growth. In addition, E*Trade announced a new marketing agreement
with ZDNet yesterday, as well as an expansion of its current relationship with
Yahoo!. E*Trade will become the exclusive provider of online investment tools to
ZDNet users. Under its revised Yahoo! agreement, E*Trade will receive increased
promotion within Yahoo! Finance and related areas on the Yahoo! network, serve
as the sponsor for network's Financial News and Insider Trading areas, and renew
its position as a premiere merchant in Yahoo! Finance. Also announced
yesterday, E*Trade will take part in the upcoming GeoCities IPO offering. While no
terms for these announcements were given, we estimate if E*Trade is paying AOL
$12.5 million per year for its 2 year agreement, we estimate these deals amount to
tens of millions of dollars combined.
Among the other stocks we view as attractive immediate buys are Getty,
SportsLine and CNET, each of which are rated STRONG BUY.
Yesterday, Getty reported solid Q2 results, with a marked acceleration towards
digital research and delivery of its images. Digital sales increased to 32% of total
sales at $15.3 million, up from 23% of Q1 sales, or $8.6 million. Gross margins
improved to 71.1%, partially due to an increase in the percentage of wholly owned
images to 19% from 5% last year, as well as from higher margins from PhotoDisc's
digital business. We expect Getty to gain more attention for its growing Web-
based earnings as it leverages its increasingly valuable stock photography library.
Meanwhile, we believe SportsLine and CNET will benefit near-term from expected
news and aggressive television promotions. NBC has already begun significant
promotion of Snap! and CNET on primetime TV, with plans to step up advertising
substantially this fall. In addition, we expect to hear results of the auction for
COMPUTERS.COM/ SHOPPERS.COM slots by the end of August. Meanwhile,
SportsLine has CBS football coverage and the possibility of new distribution deals
with networks like AOL.
Again, we believe the stocks can reach new highs by the end of 1998, based on
strong Q3 and Q4 events. We believe the long-term opportunity in the group is still
significant as audience time and advertising/commerce revenues shift from
traditional media to the Web.
For quick reference, the market capitalization of the 50 companies in the ISDEX
index is currently around $74.9 billion with total trailing sales of almost $8.1 billion,
suggesting a revenue multiple of 9.2 times. This compares to the top 20 media
companies, which have a combined market capitalization of approximately $396.3
billion, compared to total trailing 12-month revenues of about $174.2 billion, for a
multiple of almost 2.3 times.
If the table below isn't formatted correctly in your email browser, please open the
word document attached or visit the website at www.internetstocks.com.
Rating 8/6/98 7/30/98 1-Wk Price 52-Wk Change from Price
Change High 52-Wk High Target
7/30 to to 8/6/98
8/6/98 Price
Amazon AMZN BUY $109 1/2 $113 3/4 -4% $147 -
25.5% $46
America Online AOL SBUY $105 1/2 $117 5/8 -10% $140 1/2 -24.9%
$124
CNET CNWK BUY $44 $55 -20% $74 1/2 -40.9% $68
E*Trade EGRP SBUY $27 1/8 $27 3/8 -1% $47 7/8 -43.3%
$51
Excite XCIT BUY $41 7/8 $40 3/8 4% $55 1/2 -24.5% $46
Getty GETY SBUY $19 4/7 $21 1/2 -9% $28 1/4 -30.8%
$40
Lycos LCOS LTA $57 7/8 $60 -4% $107 1/4 -46.0%
$72
NetGravity NETG BUY $14 1/5 $17 1/4 -18% $32 1/2 -56.3%
$38
NewsEdge NEWZ LTA $7 1/5 $6 5/8 8% $19 3/4 -63.6%
$18
N2K NTKI LTA $14 3/4 $13 4/5 7% $34 5/8 -57.4% $15
Onsale ONSL BUY $24 7/8 $26 3/8 -6% $36 4/5 -32.4%
$45
Preview Travel PTVL BUY $29 1/2 $24 7/8 19% $44 -33.0%
$43
Infoseek SEEK LTA $24 3/4 $26 2/3 -7% $45 -45.0%
$30
SportsLine USA SPLN SBUY $25 1/2 $27 -6% $39 5/8 -35.6%
$61
Yahoo! YHOO BUY $87 3/8 $182 2/3 -52% $103 3/4 -15.8%
$61
Internet Stock Index
ISDEX $131.06 $143.56 -9% N/A NA N/A
NASDAQ Composite
Index COMP $1829.51 $1919.58 -5% $1804.6 1.4% N/A
Source: FactSet
ISDEX, The Internet Stock Index, is a trademark owned by Mecklermedia
(NASDAQ:MECK), used by permission.
BancAmerica Robertson Stephens maintains a market in the shares of
Amazon.com, CNET, E*Trade, Excite, Getty, Infoseek, Lycos, N2K, NewsEdge,
ONSALE, Preview Travel, SportsLine USA, and Yahoo! and has been a managing
or comanaging underwriter for or has privately placed securities of C/NET,
E*Trade, Excite, Getty, ONSALE, Preview Travel, SportsLine USA.
FOR ADDITIONAL INFORMATION, PLEASE CALL YOUR ROBERTSON
STEPHENS REPRESENTATIVE AT 415 781-9700.
The information contained herein is not a complete analysis of every material fact
respecting any company, industry or security. Although opinions and estimates
expressed herein reflect the current judgment of the Firm, the information upon
which such opinions and estimates are based is not necessarily updated on a
regular basis; when they are, the date of the change in estimate will be noted. In
addition, opinions and estimates are subject to change without notice. This Report
contains forward-looking statements, which involve risks and uncertainties. The
Company's actual results may differ significantly from the results described in the
forward-looking statements. Factors that might cause such a difference include, but
are not limited to, those discussed in "Investment Risks." BancAmerica Robertson
Stephens from time to time performs corporate finance services for some
companies described herein and may occasionally possess material, nonpublic
information regarding such companies. This information is not used in the
preparation of the opinions and estimates herein. Facts and other information
discussed have been obtained from sources considered reliable but are not
guaranteed. BancAmerica Robertson Stephens, its managing directors, its
affiliates, and/or its employees may have an interest in the securities of the issue(s)
described and may make purchases or sales while this report is in circulation. BA
Robertson Stephens International Limited is regulated by the Securities and
Futures Authority in the United Kingdom. This publication is not meant for private
customers.
The securities discussed herein are not FDIC insured, are not deposits or other
obligations or guarantees of Bank of America NTSA, and are subject to investment
risk, including possible loss of any principal amount invested.
Copyright * 1998 BancAmerica Robertson Stephens |
