Snippets from Thestree.com:
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" I was sure glad to hear that the buy-everything mentality had been
tempered, because it was getting out of hand. Remember back in June,
when Amazon.com (AMZN:Nasdaq) doubled in price in three weeks?
Frankly, it was giving our pet index, the Internet Sucker's Index,
fibrillations. For a stock like Amazon to double in price every three
weeks, why, you'd be looking at $393 trillion inside of a year!
But given all that, I'm sure you can share in my consternation upon
discovering -- in spite of Mr. Acampora's soothing reassurance to the
contrary -- that a stake has apparently not yet been driven through the
blackened heart of Wall Street's buy-everything mentality after all. We
offer the following sentiment we've been encountering everywhere
lately -- that the recent drop in the market wasn't a signal to get out, but
rather a chance to pile in more aggressively than ever. So, folks, it's time
for a periodic visit to our widely followed Internet Sucker's Index -- the
only investment barometer on Wall Street specifically designed to
correlate stock prices to outright stupidity. This week's message from
our statistical oracle: Investors are getting dumber than ever. "
" But, just as the 17th-century Dutch speculation in tulip bulbs began with
one bulb only to spawn an entire horticultural industry devoted to the
creation of new varieties, so too has the Internet IPO business spawned
an entire buckets-and-broomsticks brigade of Wall Street road warriors
devoted to replicating and elaborating upon the success of the first
Internet IPO of them all: Netscape (NSCP:Nasdaq).
Result? There are now 38 such stocks in the index -- one or two (like
America Online (AOL:NYSE) and Intuit (INTU:Nasdaq)) because
they're aggressively moving to redefine themselves as Internet-based
operations, others (like Peapod (PPOD:Nasdaq)) because we missed
them the first time around, and still others (like Geocities
(GCTY:Nasdaq) and Broadcast.com (BCST:NYSE)) because they
didn't even exist when we first set up the index.
The best measure of the index's growth is not the aggregate rise in its
price level -- you can see the resulting excesses on that score easily
enough by simply looking at the individual stocks in the index. For a real
insight into what the index tells us, we need to look instead to the
aggregate market value of the index itself.
From that perspective, we can easily enough see what is really going on
here. Just as the Dutch tulip craze soaked up so much of the nation's
wealth that, when the bubble finally burst in 1636, the destruction of
capital was so severe it plunged Holland into a depression, so too is the
Internet binge staking claim, week after week, to a growing share of the
stock market's aggregate worth. Consider the fact that as of early July,
when both the Dow industrials and the Internet Sucker's Index touched
their peaks, the index carried a market value of roughly $61 billion, or
nearly as much as the sum total of the American aerospace and
defense industry.
We won't belabor the point that America, as a nation, is likely to gain
greater strategic security in the world by investing its resources in
Boeing (BA:NYSE) or Raytheon (RTN.A:NYSE) than by pouring its
treasure into Yahoo! (YHOO:Nasdaq) at 78 times trailing revenues.
Suffice it to say that since July, the Internet Sucker's Index has grown to
a market value of $74.4 billion, as of Oct. 29, and is now equal,
amazingly enough, to fully 3.5% of the entire market value of the Dow
industrials.
Now, in case you don't realize it, the Dow industrials include such
behemoths as IBM (IBM:NYSE), AT&T (T:NYSE), General Electric
(GE:NYSE), General Motors (GM:NYSE), McDonald's (MCD:NYSE)
and Exxon (XON:NYSE), among 24 others, collectively employing more
than 3.5 million people pumping more than $67 billion in profits into the
economy annually. The Internet Sucker's Index, on the other hand,
includes the likes of Go2Net (GNET:Nasdaq) (23 employees) and
numerous other equally forgettable operations, giving jobs to a mere
25,000 people, and producing, with the exception of America Online and
eBay (EBAY:Nasdaq), no profits at all. So, keeping in mind Mr.
Acampora's comforting observation that the buy-everything excesses
have finally been wrung out of the market, one might safely say: Tell that
to the folks who've been setting themselves up in recent days for a
world-class screwing in the shares of the aforementioned Internet
horror stock, eBay.
In case you missed it, eBay is an Internet auction house that went public
at 18 per share on Sept. 24 and within 25 trading days was selling for
84 per share. Much of that gain came in just two trading days -- Oct. 26
and 27 -- when the shares nearly doubled in price to an intraday high of
91 on the hardly unbiased prediction of an analyst for Donaldson
Lufkin & Jenrette, which co-underwrote the IPO, that eBay would go
to 100 per share "within the next six months to a year."
Thanks to the prediction, eBay's shares were most of the way there
within 48 hours -- accomplishing in two days the same sort of doubling
stunt that had taken Amazon three weeks to pull off back in June. Were
this doubling act to continue (which no one expects), by Thanksgiving,
eBay would be worth $813 trillion, which is more money than eBay
could hope to raise if it were to conduct an Internet auction for every
dollar-denominated asset on earth.
As all serious investors know, eBay isn't worth even a fraction of its
current market capitalization of $3.3 billion. More than 90% of the
company's 39.8 million shares aren't registered for public sale, are not
being traded, cannot presently be borrowed against, and can't be sold
into the market even after they are registered without devastating the
current price. The reason the price shot from 18 to 91 is because the
float is so thin (3.5 million shares) that it takes no increase in demand at
all to create dramatically rising price levels.
And that, in turn, points to the basic gimmick that firms like Goldman
Sachs (the lead underwriter in the deal) have been working for well
over two years now in these junk-equity IPOs: Bring these highly
speculative issues to market at way, way under their likely demand in
the second market, then hope that the expectation of a wildly surging
demand created by day-trading speculators will induce institutional
buyers to take a piece of the action. Thereafter, of course, the prices
stay aloft only until the particular sector (or subsector, or "story" behind
the stock, or whatever hype got it going in the first place) falls out of
fashion -- at which point the stocks crash instantly back to earth.
Remember K-Tel (KTEL:Nasdaq), the music retailing outfit? The company
had traded for years on Nasdaq at less than 4 per share. Then, on April
9, someone at K-Tel put out a press release saying the company was
planning to open a retailing site on the Web, and within a month K-Tel
was selling for nearly 40. Eventually the company actually did open a
Web site, but by then the speculators and day traders had lost interest in
the stock and it was too late. Today, the stock is selling for
(split-adjusted) 13 per share.
The K-Tel story is instructive, because music retailing is now the song
that Jeff Bezos, chief executive of Amazon, is singing for investors in
that overpriced stock. When the Sucker's Index collapsed in mid-July,
Amazon stood at a peak of over 140 per share -- driven heavenward on
wildly overblown hopes of the company's prospects as a "virtual
retailer" of books.
But Amazon had never made a penny on its books business, and the
more books it sold, the more its losses mounted. Worse, sales growth
itself had begun to slip as competitors like Barnes & Noble (BKS:NYSE)
opened their own online sites. So, last spring, we all started reading of
Mr. Bezos' big, new plans to have Amazon broaden from books into the
retailing of music CDs.
On Oct. 28, the world finally got to see where this Big New Idea was
leading: Nowhere, as Amazon released third-quarter financial results.
They showed that while revenue grew fourfold to $153.7 million, net
losses grew fivefold to $45.1 million, as the company keeps investing
every dime of revenue in hopes of capturing that first dollar of profit. In
the process, Amazon has turned itself into a welfare dependent on the
capital market.
There is no point in raking over the frightful finances of a company like
Amazon, which, in the wake of its third-quarter numbers, nonetheless
soared close to 7 per share because the numbers weren't as bad as
they could have been. Nor need we dwell on the fact that while eBay is
now profitable, and may even at the outside reach earnings of 60 cents
per share by the year 2001, its current price of 84 makes utterly no
sense no matter how well you think it will do in the future. That price
level does, after all, translate into a three-year-forward price-earnings
multiple of 135, which is three times as rich as the multiple that Wall
Street is now giving Microsoft (MSFT:Nasdaq) -- by far the most
consistently strong earnings-generator of the last decade.
There's no point in dwelling on those matters because they are not what
is driving the stocks in this sector in the first place. With due respect to
Mr. Acampora, no one cares whether these companies make money or
not. All they care is whether their share prices keep rising. It's the same
sentiment that drove the biotech boom of the 1980s, the new issues
craze of the 1960s, the Florida land bubble of the 1920s, the tulip frenzy
of 17th-century Holland.
In sum, what's driving this boom is greed, pure and simple, as captured
and expressed in the minute-to-minute speculative trading of day traders
looking to grab a fortune on the cheap and get out before it's too late.
Enough said. " |
