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To: H James Morris who wrote (22813)	10/23/1998 11:27:00 PM
From: Bill Harmond	Respond to of 164685

>>Please stay. Great. That's all he needs to hear...

To: H James Morris who wrote (22813)	10/24/1998 6:25:00 PM
From: Glenn D. Rudolph	Respond to of 164685

The Internet Capitalist SG Cowen Internet Research 4 the rose in this space. But if the market really has adopted a new view of risk, growth premiums, and valuation, which names in the Internet universe still make sense? There can be no denying that the Street was willing to pay a premium for growth in the first half of 1998 (a fact that now seems quaintly obvious). The Internet stocks benefited enormously from both fear and greed in this regard: greed in wanting one's portfolio exposed to these names and the fear of being left out of the party. Now, however, investors are willing to pay a premium for safety, which clearly changes the near term dynamics of Internet investing since these names come with the highest operational and security risks in the market. Joining safety as an important metric to measure is earnings, a fact made all the more piquant by the observation that , since the end of WW II, earnings are up 54 times for the S&P 500 and the broader market is up 60 fold. Through recessions, deflation, stagnation, assassinations, and the like, earnings are what have really mattered. So the real question becomes, which of the companies in the Internet universe have the greatest earnings potential and offer that earnings stream with the least amount of risk (read: highest safety)? In our opinion, the Internet's three Blue Chip companies, AOL, Amazon, and Yahoo! are the most well positioned to deliver a strong, defensible earnings stream over the long haul. And if earnings are a key determinant of stock price appreciation (and history certainly suggests as much), then continued execution against a plan that does or will deliver substantial earnings should prove beneficial to these stocks. Yahoo! just delivered remarkable evidence of that execution; AOL and Amazon should follow with similarly strong results next week. Alan Greenspan, in a recent speech before the National Association of Business Economics described the market's reaction toward the worldwide economic troubles of the last few months, suggested "what is occurring is a broad area of uncertainty or fear…and when human beings are confronted with uncertainty, meaning they do not understand the rules of the terms of particular types of engagement they're having in the real world, they disengage." We would counsel Internet investors to remain actively engaged, since buying opportunities in this space rarely come with any advance warning. September Quarter Internet Earnings Now that we are more than halfway through Internet earnings period (by our count some 21 Internet companies have announced their September quarters), we are starting to see hard evidence why this sector has moved up over the last few weeks. 14 of the 21 (or 66% of) companies that have reported so far have outperformed expectations on an EPS basis, with the most notable out-performance in the group coming from industry bellwether Yahoo!. This strength has been roundly distributed in the sector, from Internet security names like CheckPoint (CHKPF-not rated) and ISS Group (ISSX-not rated) to Internet advertising-based models like Excite (XCIT-Buy), DoubleClick (DCLK-Buy), and Broadcast.com (BCST-not rated) to Internet infrastructure names like Inktomi (INKT-not rated). All have beaten numbers. With those other Internet blue chips Amazon.com and America Online reporting next week (Wednesday and Tuesday after the close, respectively), we anticipate continued strength in the sector, since we believe that these Internet companies' operating results (as opposed to investor psychology or stock momentum) are ultimately what should drive