THE RAGING BULL'S CYBERSTOCK INVESTOR REPORT
"Your Weekly Internet Stock Newsletter"
Editor: Matthew W. Ragas
ragingbull.com
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***RAGAS SPEAKS FOR THE WEEK***
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IS THERE ANY SLOWING THIS MARKET DOWN?
Am I beginning to hear rumblings of DOW 10,000??? The DOW continued to power
higher today, closing in positive territory for the sixth time in seven
sessions. For the week, the index gained 239.96 points, or 2.7 percent, to
close at 9,159.55. Who would have thought back in the beginning of October,
that by the latter part of November, we would be only two hundred points away
from the DOW's record high? And how about those Internet stocks- I find it
extremely significant that the media is actually attributing a certain
percentage of the market's recent gains, to the overall strength of the
Internet sector.
CUDDLY, CYBER TEDDY BEARS?
The hunger for Internet stocks has, in my opinion, reached a new all time high.
What a better example than the recent rise in share price of Vermont Teddy Bear
Co., who announced a deal this week to be featured in a new online mall
launched by Yahoo! The company's stock had been trading under a $1 a share
since September. Let's take a wild guess which direction Vermont Teddy Bear
shares went after announcing the Yahoo! news? Try more than tripling- to $3
1/8. And here's the best part of this tale- a Vermont Teddy Bear spokesperson
confirmed that the Yahoo! deal cost absolutely nothing.
TWO INTERNET RUMORS...
What would a week in the Internet sector be without rumors of tantalizing new
mergers and acquisitions. The word on the street is that Intuit, creators of
the popular Quicken.com financial portal, will soon announce an agreement to
acquire Quote.com, a competing financial information site. This is simply a
case of one very large fish, Intuit, looking to bulk up and get even larger, to
better fend off new competition in this area, such as Microsoft. While this is
interesting news, the rumor of the week goes to a possible AOL- Netscape
relationship. Published reports this week suggest that AOL could end up
switching over and using Netscape's browser, instead of archrival Microsoft's,
on their service. So will the two just cut a browser deal, or will Netscape
soon find themselves part of the AOL family in Dulles, VA? Call me crazy, but
my bet is on the latter.
IS NETSCAPE ON THE COMEBACK TRAIL?
After being regularly abused by investors, the media, and analysts alike, the
cards are actually falling into place for a Netscape comeback. Judging by
Netscape's moves in recent weeks, one would be well served to take notice and
end the talk of "Netscape's eminent obituary." In fact, the hearse hasn't
even pulled out of the cyber funeral home yet. And if Jim Barksdale has
anything to say about it, he'll be trading in the Netscape hearse for an AOL
Ferrari shortly.
Or maybe he'd even settle these days for having his company become the limo
driver to Case's finely tuned online machine. After all, becoming a key
component to the world's #1 online service doesn't sound too shabby these days.
With their backs against the wall, Barksdale & Co. have recently pulled a
variety of smart acquisitions out of their hat. First, let's look at Netscape's
November 11 acquisition of AtWeb. The AtWeb acquisition gives Netscape more
than 600,000 small business web sites to immediately integrate into the
Netscape Netcenter portal. Netscape's 70 million users will now have access to
a variety of AtWeb's small business services and direct marketing tools. No
doubt about it, this acquisition follows the similar path of Microsoft's recent
motivation to acquire the LinkExchange network. Small businesses are a "big
business" when it comes to the Internet- there are always servers, e-commerce
software and other Web development tools that can be hawked to this
entrepreneurial crowd. Chalk up smart move #1.
On Wednesday of this week, Netscape announced the acquisition of the NewHoo!
Community Directory
Project. NewHoo!, which was launched this past summer, is an Internet search
directory maintained by 4,500 Internet 'volunteer editors'. While the move
doesn't have Yahoo! and the other portals shaking in their boots, it does place
Netscape in the middle of the Internet directory game. NewHoo! will immediately
give Netscape a competitive advantage, in that the directory will be
continually updated and maintained by the thousands of volunteers who dedicate
their time to NewHoo!. How can you not like this call by Barksdale- for a
small price he is able to acquire a directory that will have fresher content
than competing services, and he doesn't even have to pay these volunteers and
educational institutions to boot! Chalk up smart move #2.
An SEC filing on November 11th also revealed that Netscape is looking to
terminate a 5-month old agreement with Infoseek that drives Web surfers from
Netscape's NetCenter site to Infoseek's search engine. Why would Netscape seek
to renegotiate or cancel this current agreement? The logical answer to this
question is that traffic to NetCenter has risen more than 45 percent in the
past three months, and obviously Netscape would like to re-work their deal to
maximize revenue. But the question still remains- then why isn't Netscape
reworking their similar search deals with Lycos and Excite?
For that reason, I offer this brief conspiracy theory, which traces its roots
back to the Volpe Brown Whelan Internet & Communications Conference in
October. At the conference, numerous fund managers fell under the impression
that Infoseek planned to possibly unveil with their Go Network a "connectivity
element that could morph into a type of AOL." Could Netscape really be
shunning Infoseek now, because they already plan to announce a significant
partnership with AOL shortly? Obviously, AOL would rather not be dealing with
a company that is friendly with a potentially serious competitor like Infoseek
and their planned Go Network. Regardless, Barksdale wins my praises for
playing hard ball with one of the portals, and in the very least, extracting
more revenue out of his own portal site. Let's chalk up smart move #3.
So now, after these three sharp moves in only a few weeks, the rumor of a
browser deal with AOL looms in the background. The Wall St. Journal reported
this week that AOL and Netscape are mulling over a potential partnership that
would include a deal to embed Netscape's Communicator browser into AOL's online
service. For Netscape the deal is essential- guaranteed distribution to 15
million AOL user's desktops. AOL's current exclusive browser deal with
Microsoft, regarding Internet Explorer, expires on January 1, 1999. There is
little doubt in my mind that these discussions are in fact occurring. Netscape
back in '96 should have originally bagged this browser deal with AOL. But
arrogance on Netscape's part, and the persuasive power of the boys from
Redmond, helped corral the current AOL- IE browser deal. The situation has
definitely changed since then, as AOL is now a much larger and stronger
service, and a true golden child of Wall St. It is inevitable then that the
competitive fires between Microsoft's MSN and AOL online will continue to heat
up. The Internet is simply too large a space for these two companies to not
play some serious hard ball against each other.
If Netscape is obviously stuck in a situation where they desperately need the
distribution of AOL, why then would AOL stop with only cutting a browser deal
with Netscape and/or making an equity investment in the browser pioneer? It
seems to me that it would make much more sense to swoop in and completely
acquire Netscape at this juncture. The benefits for AOL of acquiring Netscape
are quite obvious, also. After all, it was AOL, not Microsoft, who shelled out
$287 million to acquire chat messenger company ICQ. With this deal AOL gained
not only ICQ's 12 million eyeballs, but also invaluable placement on millions
of ICQ users' desktops. AOL definitely understands how to capture the eyeballs
and desktops of users. The new upgraded version of ICQ, to be released in a few
weeks, will integrate other AOL features, such as "search", into the instant
messenger application. Netscape would be then the ultimate "ICQ-like"
desktop/eyeball acquisition grab for AOL.
I remain very suspect that AOL will be able to continue to maintain their
closed-end proprietary dial-up service indefinitely. It seems more than likely,
by their recent moves to acquire ICQ, that they are looking to broaden their
Internet applications, and offer a completely Web based Internet service. A
service with all of the features of a traditional AOL, but one that is Web
based much more like an ISP, such as MindSpring or Earthlink. Netscape's
browser then, offers an incredibly functional platform that is already
installed on millions of users desktops, with the ability to launch a variety
of AOL's services.
>From my vantagepoint, it looks like Barksdale is doing everything he can at
this point to primp up Netscape for a sale. The acquisitions of NewHoo and
AtWeb both offer more attractive eyeballs and useful services for AOL to take
under their wing. And while my Netscape-Infoseek thoughts may resemble an
X-Files plot line, we have seen stranger insider deals in the Internet space in
the past.
Netscape currently sports close to a $4 billion dollar market cap, and has
watched their share price rise more than 35% in the past rumor filled week. In
comparison, AOL currently has a market value of close to $39 billion, and
definitely can offer the right combination of cash and stock to do this deal.
It would seem logical then, that if AOL did make this acquisition, they could
quickly spin off the enterprise software side of Netscape's business to either
an IBM or a Sun.
So the plot lines are drawn- with a very possible judgement day- January 1,
1999.
What a potentially beautiful date for Jim Barksdale. We can only then wait and
see if Steve Case will swing by that night in the AOL Ferrari and pick up
Barksdale for a brief drive down merger lane.
I wonder if Gates will be bringing any of his own fireworks to the AOL-Netscape
New Year's party?
.
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M&A whispers, love notes, manifestos, conspiracy theories or related
propaganda, please email CyberStock Investor Report's Editor, Matt Ragas at
matt@ragingbull.com. Ragas is available to the press for comments on Internet
stocks upon request.
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