Time to start another long day.......The S&P / AOL news.......
****************
Does the S&P 500 Show a Net Loss? (Correct): Taking Stock
Does the S&P 500 Show a Net Loss? (Correct): Taking Stock (Corrects 16th paragraph of story that ran yesterday to show eBay Inc. is profitable.)
New York, Dec. 2 (Bloomberg) -- Analysts and traders expect Standard & Poor's Corp. to add America Online Inc. to the closely watched S&P 500 index in the next several months -- and some say it's about time.
AOL, the No. 1 online service, would be the first pure Internet company in the index. Though it has a market value of $41.2 billion, more than all but 55 companies in the S&P 500, AOL has been excluded from the index. So have other online companies with huge market values, such as Yahoo! Inc. and Amazon.com Inc.
An AOL addition would fill what many regard as a gaping hole in the S&P 500. ''The (Internet) sector is definitely missing,'' said Dan Mathisson, head stock trader at D.E. Shaw Securities. ''It would make it a more representative index if you had a few of them in there.''
No. 1 Internet search directory Yahoo, for instance, has a market value of $20.4 billion. By comparison, retailer and index member Sears, Roebuck & Co. has a market value of $17.1 billion. Amazon.com has a market value of $11.1 billion.
David Blitzer, S&P's chief economist and chairman of the committee that picks new index members, defends the exclusion of companies without a solid history of earnings. ''It doesn't do us any good to add a company and then have it go belly-up.'' he said.
Analysts say S&P will be adding several stocks to the index soon because of mergers and acquisitions, and Blitzer said a number of technology stocks, including Internet stocks, are on its ''consideration list.'' ''We're aware of a lot of Web companies, and most people here probably subscribe to AOL,'' said Blitzer, himself an AOL user. 'Balloon Index'
S&P, a financial research and information company, declines to comment on prospective additions to its market benchmark index. For good reason: Some $626 billion is invested in portfolios that try to match the index, and a stock that's added tends to pop as investors buy the shares.
Many analysts and investors say S&P is right to be reluctant about hot new companies. ''Internet stocks ought to be included in the balloon index, for stocks that are getting blown up to unsustainable heights,'' said Bob Finch, a money manager at Aeltus Investment Management, which manages almost $50 billion.
Others argue that their exclusion has cost index investors money. Had America Online been added to the S&P 500 at the end of 1997, the index's performance would have improved by about half a percentage point, according to Leo Guzman, president of Miami- based Guzman & Co., a brokerage that trades stocks for investors who want to match the index's performance. The estimate is rough, he said, because it's impossible to say which company would have been deleted to make room for AOL. ''AOL should have been added and hasn't been,'' Guzman said.
Earnings Stability
This isn't the first time Standard & Poor's has been slow to admit a hot technology stock to the index. Microsoft, now the most highly valued company in S&P 500, wasn't added until June 1994, eight years after it went public, though it made money every year.
America Online's earnings have been erratic, said Diane Garnick, a Merrill Lynch & Co. derivatives strategist. AOL earned $29.8 million in 1996 and then lost $499 million in 1997.
Yet with last week's agreement to buy Netscape Communications Corp., and revenue from a separate licensing agreement with Sun Microsystems Inc., AOL's profits may become more stable, Garnick said. ''With Sun in the picture, AOL stands a much better chance,'' she said. ''It will help smooth out their earnings.''
S&P will add 17 stocks to the index soon, she added.
Few Profits
Most Internet companies lose money. Amazon.com does. Yahoo! made money in the first and third quarters, though it hasn't yet had a profitable year. AOL and eBay Inc., an online auction company, are exceptions: both are profitable.
Many money managers distinguish between more established Internet companies such as AOL and upstarts like EarthWeb Inc., a provider of technical information for Web site designers, and theglobe.com Inc., which allows users to create free home pages. The companies, which aren't yet profitable, went public in recent months and have seen their shares multiply several times over.
Money managers and brokers say AOL and other Internet stocks will be added to the S&P 500 eventually, as the companies prove themselves a permanent fixture in the global marketplace. ''There's no doubt the Internet is a growing part of economic activity,'' Guzman said.
Given S&P's insistence on earnings, however, eventually may be a long time for most Internet companies.
Standard & Poor's is owned by McGraw-Hill Cos., which publishes Business Week and competes with Bloomberg LP, parent of Bloomberg News, in supplying business news and financial data.
|
