BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
mailto:keith_benjamin@rsco.com
November 20, 1998
The Web Report #47
ITS TIME TO START RETURNING SOME CHRISTMAS PRESENTS: We have been lucky
and received many gifts much too early. We are tempted to open a gift
store on internetstocks.com and try to go public.
This week, the ISDEX index closed at 206.62, up 2.7% from the end of
last week and up approximately 107.7% over the same period last year.
For comparison, the NASDAQ ended the week up 3.7% over last week and up
19.9% from the same date last year.
Among those stocks reaching new highs, AOL closed yesterday at $83-3/8,
Yahoo! at $185-7/8, Amazon.com at $153-1/4, eBay at $143-3/4, and Lycos
at $62.
ISDEX hit an all time high Wednesday at 212.77. The typical pattern has
been to see the index fall by at least 10-20% in between reporting
seasons, when less news provides fewer catalysts for retail and other
investors. This was compounded last quarter by the growl of a bear
market.
While we expect the media may continue to proclaim prospects for a huge
e-tailing season, we still believe the risk/reward profile of Internet
stocks is dangerous today. There may be a few stocks that have not
moved yet that could be tradeable, but we believe the averages are more
likely to trend down between Thanksgiving and Christmas. As such, we
would look to trim a few positions before trimming our trees.
HOW MANY STORES DOES IT TAKE TO COMPLETE YOUR CHRISTMAS LIST? As the
holidays approach, we are starting to think about all the gifts we'll
need to buy for our family, friends and coworkers. This year, we do not
want to push and shove our way through stores in search of the perfect
gifts.
For non-Internet users, choosing where to shop is the easy part. If you
are the typical last minute shopper, you probably go to your local mall,
favorite department store, or wherever you feel you can cover the most
ground in the shortest amount of time.
WELCOME TO ONE-STOP WEB SHOPPING: In contrast, while online shopping
promises an uncrowded, more efficient shopping experience, most Internet
users probably have not found a favorite, all-inclusive place to shop.
We usually buy one item at a time, usually on a different site each
time. The problem with this is that it's a pain to type in all your
shipping and credit card information. Luckily, just in time for the
holidays, several Internet companies have recently promised to make this
year's holiday season that much easier by announcing one-stop shopping
solutions.
GIVING YOUR CREDIT CARD AND SHIPPING INFORMATION ONCE: Following
Excite's unveiling last week of Excite Express Order, this week several
other Internet players made similar announcements, including America
Online, Yahoo! and Amazon.com. All of these new services tout the
advantage of allowing users to purchase goods from a variety of
merchants without having to register or enter their credit card
information more than once.
On AOL, you've already given your credit card and pertinent information
to pay for access. Because you spend more time where you have your
email address, AOL has more opportunities to entice you to shop. AOL
has created value by making it easy for you.
America Online announced the opening of its new holiday Shopping Channel
this week, offering more than 5 million products, organized into 16
shopping categories, from over 110 merchants. Out of AOL's 14 million
members, approximately 6.9 million shop on the service each month. AOL
also announced plans to extend its Shopping Channel to its 28.5 million
AOL.com users. Along with the relaunched channel, AOL will be
introducing several promotions at the end of November, including The
Perfect Gift (a gift suggestion guide), Gift Finder (a more personalized
gift selection tool), Deals & Steals (for discount shopping), AOL
Wishbooks (a gift registry area), a Gift Reminder Service, and a Local
Malls Locator.
Also this week, Yahoo! launched Yahoo! Shopping
(http://shopping.yahoo.com), which organizes more than 2 million
products into 14 categories, such as books, electronics, toys, and
music. The service makes it easier to search, compare and purchase
products. Each of the 2,700 participating online stores will pay a
monthly fee, ranging from $100 to $500 depending upon store size, as
well as a percentage of transactions. The percentages vary per store
agreement. While we are sure it will see healthy holiday sales given
its more than 25 million registered users, we think the merchandising by
categories and lists is inconsistent with how people really shop.
We would not be surprised to hear similar announcements over the
upcoming weeks from other large Internet brands and networks, such as
Lycos and Infoseek.
E-Tailing Update - lauren_cooks_levitan@rsco.com
AMAZON.COM SENDS ANOTHER EMAIL TO RETAIL INVESTORS: The last time
Amazon.com launched a new product, it had been anticipated by
institutional investors for months, but woke up retail investors to
aggressively buy the stock. Following the fabulous CD launch, we now
have a video department and a gift center. This time the stock went up
on the news release even before the email was sent.
We were wondering what the next product would be, and Amazon.com
delivered a basket. Given the purchase of Junglee, an automated
shopping guide, this expanded mall concept should not come as a
surprise, in our view. The first step is a holiday store, with a modest
assortment of products at reasonable, but not sharply discounted
prices.
The holiday gift store provides an interesting next test for the power
of Amazon.com's brand to drive sales into a new category with little
product differentiation. Service seems to be the selling point. It
appears to be taking inventory on some 1,000 products, which should
allow quick delivery. It also offers a personalized gift shopping
service called Gift-Matcher. Users can enter interests or categories
and the Gift-Matcher service will generate a list of possible gift
ideas.
E-TAILING MALLS VERSUS SPECIALTY STORES: Surely customers can find more
choices if shopping at more niche-focused e-tailing specialty stores,
but edited collections provide convenience. Unlike in Amazon.com's core
book area where depth of assortment is critical, it appears to us that
the company has focused on core, fast-turning items in each product
category on the gift site. Amazon.com's tight assortment in the new
categories allows for niche-focused e-tailers to still achieve
destination store status for customers shopping with a specific purchase
in mind. For example, if you go online specifically to purchase gifts
for children, you will find much more merchandise and product
information at eToys. Think of it as a trip to Bloomingdales versus FAO
Schwartz. Still, we believe the malls can cater to impulse purchasing
across categories. Specialty e-tailers will have to work harder than
ever to drive traffic to their sites through advertising, promotion,
combined with product depth and related content.
OTHER NEWS:
Lycos reported Q1:99 revenues of $24.8 million, and a net earnings loss
of $0.06 per share, before amortization, one-time merger related charges
and gain on sale of equity securities, above our estimates of $21.3
million and a loss of $0.07 per share. Overall, traffic was up 26%
sequentially to 30 million page views per day, versus 24 million at the
end of July, excluding WhoWhere? traffic.
Through its acquisitions of Tripod and WhoWhere?, and its planned
acquisition of Wired Digital, Lycos has purchased a large collection of
registered users, but also sites where it is difficult to sell
advertising. The strategy is that these registered users will end up
browsing other parts of the Lycos network, to which they now belong. So
far, this concept has worked, with traffic increasing across all areas
of the network. Going forward, we believe management's challenge will
be to effectively cross-promote the brands and continue growing traffic
levels among the sites.
Lycos posted a big jump in registered users, ending Q1 at 15 million, up
from 5.3 million last quarter. We believe registration has become a key
measure in differentiating sites and networks. If you've made the
effort to register, you are more likely to keep coming back. If you
give a credit card, you may even be enticed to spend real money.
THE BIG PICTURE: We continue to believe the market capitalization
levels for the group make sense relative to the economic opportunity,
although we expect the number of competitors will narrow considerably
over the next year or so. This week the market capitalization of the 50
companies in the ISDEX index (excluding Cisco) is approximately $119.3
billion, with total trailing sales of almost $8.4 billion suggesting a
revenue multiple of 14.2 times. This compares to the top 20 media
companies, which have a combined market capitalization of approximately
$381.5 billion, compared to total trailing 12-month revenues of about
$173.8 billion, for a multiple of almost 2.2 times.
Rating 11/19 11/12 1-Wk 52-Wk Chg Price
Chg High 52Wk Hi Target
11/12- to 11/19
11/19 Price
Amazon AMZN BUY 153 1/4 131 17% $170 5/8 -10.2% $75
Am.Online AOL SBUY 83 3/8 70 3/8 18% $84 -0.7% $65
CMG CMGI LTA 76 1/4 75 2% $91 * -16.9% $46
CNET CNWK BUY 60 49 1/4 22% $74 * -19.5% $68
Dig.River DRIV BUY 18 1/4 13 1/5 38% $14 7/8 22.7% $15
Dialog DIALY MP 6 3/8 11 1/4 -43% $16 * -60.8% $11
Dbl.Click DCLK MP 37 1/2 35 1/4 6% $77 1/8 -51.4% $20
Ebay EBAY BUY 143 3/4 126 14% $148 * -3.2% $57
E*Trade EGRP BUY 23 1/4 22 1/8 5% $35 * -34.0% $42
Excite XCIT BUY 51 3/8 52 3/8 -2% $56 -8.3% $46
Gemstar GMSFT BUY 58 1/2 58 4/9 0% $60 3/4 -3.7% $70
Getty GETY BUY 14 13 3/4 1% $28 1/4 -50.7% $26
Lycos LCOS BUY 62 53 17% $65 1/8 -4.8% $45
NetGravityNETG BUY 16 7/8 15 5/8 8% $32 * -48.1% $38
Network
Solutions NSOL BUY 57 1/8 68 1/2 -17% $78 * -27.2% $90
NewsEdge NEWZ MP 9 8 13% $19 * -54.4% $12
N2K NTKI MP 9 7/8 10 7/8 -9% $34 5/8 -71.5% $5
Onsale ONSL BUY 26 3/8 22 1/8 19% $36 4/5 -28.3% $38
Prv.TravelPTVL BUY 14 1/4 11 1/4 27% $44 -67.6% $66
Infoseek SEEK MP 32 1/4 33 1/4 -3% $45 -28.3% $22
SportsLine
USA SPLN BUY 16 15 1/2 3% $39 5/8 -59.6% $60
Yahoo! YHOO BUY 185 7/8 173 1/4 7% $190 * -2.3% $67
Internet Stock
Index ISDEX $ 206.62 $201.10 2.7% N/A 107.7%(1) N/A
NASDAQ Composite
Index COMQ $1919.68 $1851.06 3.7% N/A 19.9%(1) N/A
To improve the alignment of the table:
1. Highlight the data.
2. Go to the Format menu and choose "Font"
3. Choose "Courier" and press "OK".
(1) Change based on last 12-month's performance.
Source: AT Financial Information and BRS Estimates
BancBoston Robertson Stephens maintains a market in the shares of
Amazon.com, Cisco Systems, CMG, CNET, Digital River, Dialog,
DoubleClick, eBay, E*Trade, Excite, Gemstar, Getty, Infoseek, Lycos,
NetGravity, Network Solutions, NewsEdge, N2K, ONSALE, Preview Travel,
SportsLine, Yahoo! and has been a managing or comanaging underwriter or
has privately placed securities of Digital River, eBay, E*Trade,
Excite, NetGravity, ONSALE, Preview Travel, and SportsLine within the
past three years.
For additional information, call your BancBoston Robertson Stephens
representative at 415 781-9700.
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material fact respecting any company, industry or security. Although
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