To: Frost Byte who wrote (27419 ) 12/14/1998 8:45:00 AM From: William Bach Respond to
Morning Report
Mon Dec 14
eMailbag Monday:
Phantom Internet Stocks? Etail, & More
By Steve Harmon
Senior Investment Analyst
Internet.com
"Where Wall Street Meets The Web"
First reader up writes:
"Steve: How about phantom Internet stocks? Barron's thought Fed Express
could be a winner from all this e-commerce. What about companies that
make e-commerce software? Like Open Market or Broadvision. Didn't Intel
just buy a privately held company that makes e-commerce software iCat.
What's the future for these company types? Please enlighten us."
Reply: For etail, the overnight shippers are effectively the shipping
departments of those companies. Outsourced shipping. Another reason why
etail is in the "zero gravity" space (a term I coined to describe
ecommerce efficiencies, better margins, global markets and
instantaneous, endless assortment of goods and services). So all the
shippers could be winners.
As for Broadvision (NASDAQ:BVSN - news) and Open Market (NASDAQ:OMKT -
news) , both firms seem to have what we think could be 1999's mantra for
all businesses: e-commerce, which, despite the headlines, has a long way
to go in every area. Most forecasters get excited about projecting $350
billion in ecommerce in a few years. The flaw there though is that these
are linear projections and do not factor organic systems.
At its core the truly successful ventures on the Internet are all
organic, as a cell splits and multiplies from one to two, four, eight,
sixteen...so we think the correct way to do an ecommerce forecast--and
we've done these many times--is to look at it like this: we think
ecommerce could be at least $350 billion but probably much larger than
that if the biologic nature of growth of the Internet commerce
continues.
Further, if you consider that perhaps as many as 95% of ALL businesses
in the U.S. are not on the Internet then you begin to see fertile fields
for all kinds of brand new ways to get them on and in the Internet. Is
it bright enough in here yet?
24/7@17
"Your opinion on TFSM would be appreciated, I had originally bought @
$17. Took profit on day after Thanksgiving, but still have 700 do you
think this is the number #2 advertiser on the Internet?"
Reply: According to Media Metrix, 24/7 Media networks reached 44.1% of
all Internet users and had 26.7 million unique users in September 1998.
In June, rival DoubleClick (NASDAQ:DCLK - news) reported a 29.4% reach
over 170 sites in its network. While the months are not the same this
suggests that 24/7 could be #1, unless DoubleClick grew its reach 15%
since June which seems unlikely.
We have a belief that owning the #1 and #2 in any Internet category may
probably be a pretty good spot to be in. If you've covered your costs
basis in TFSM then it's really up to you to decide if you like owning a
#1 or #2 in the Internet ad arena, what your return expectations are and
over what period.
Defining Moment
"Could you clarify for me what is meant by WEBDEX? I am a new subscriber
to ISR and am trying to catch up. Is this assuming a new methodology for
valuing these companies that is tied to users. Is users synonymous with
hits or more discerning? Thank you very much for your help and keep up
the great work."
Reply: WEBDEX is a term that describes a metric I invented in early 1996
for valuing Internet companies by dividing market cap by number of
unique monthly users (provided by Media Metrix). That way of valuing an
Internet company has since been picked up and is now widely used on Wall
Street.
Hang Gliding On Wall Street
"Dear Steve, i am a hanglider pilot and so don't mind living
dangerously. I am just about to take my first ever steps to invest in
the stock market and after seeing on the news what has happened a few
times when new Internet stocks hit the market, i am thinking about
investing all i have which totals around twenty five thousand dollars in
this area.
As i said i don't mind living dangerously but would obviously prefer not
to make a complete mess of my first stock investment. I don't want to
gamble on safer blue chip stocks as i feel this is ok for people with
plenty to invest who stand to make a lot even if something goes up only
10 percent. I want to use my small amount in an attempt to make a large
win in spite of the risks.
I know you cant see into the future but you seem excellent in your
predictions with regards to Internet stocks and I would greatly value
your opinion about infospace.com. Do you foresee an increase in the
stock value as happened with XOOM.com or do you feel the gains will be
considerably more modest. Do you foresee a chance that there might be
considerable losses?. Is this a share one should purchase and sell the
same day? The stock was supposed to hit the market on the 11 Dec and now
I hear it is delayed. Do you have any idea when it will open and do you
see anything negative in the fact that it has been delayed. On CNBC
television I get the feeling that the conventional investors are very
irritated about the vast increases in Internet stocks and I hear rumors
that they would like to ruin this area for green investors like myself
so that the big players rule the market once more.
Do you think they can do this and if so do you think they might have
something up their sleeve (perhaps connected with this delay) which will
ruin the gains of infospace.com. Do you think that this year's Internet
'gold rush' with stocks like XOOM is a thing of the past or is this only
the beginning of events like this? I would really appreciate your
answering any of these questions and feel there may be many other
completely green investors who are wondering the same as me - maybe this
would be a good subject to discuss in one of your excellently written
analysis."
Reply: Infospace.com is scheduled to go public this week. Watch the news
for when and how much. I believe the better quality Internet IPOs could
do well on opening but there has also been a handful now that have gone
public and sapped up some of the demand.
In my universe of thinking from left to right along a continuum goes
like this: content at the far left, valuable but not the most efficient
way to convert users into revenue via ads. On the far right I see
commerce, where every click can generate revenue that far exceeds the
pennies paid for every banner ad that content relies on.
On that "webline" then I would place a content stock as attractive but
an ecommerce or etail stock as more attractive. For example, well over
half XOOM.com (NASDAQ:XMCM - news) revenue comes from selling stuff. And
something like eBay (NASDAQ:EBAY - news) is a commerce machine if it can
ever outgrow the stigma of being a beanie baby, furby frenzy, or when
it's not booting off members critical of its lack of service or getting
sued.
Forget E.F. Hutton, Peter Lynch or Warren Buffett...
"Steve Harmon is the guru of net stocks and the Internet. He is the ONLY
Internet analysis I follow and I make most of my stock buys according to
what he thinks. He has made me a whole lot of money. Go Steve, you are
the man!"
Reply: Thanks for the compliment. Our commitment to you is nothing less
than the best analysis, the best info, the best understanding of what
the Internet is and could represent--as well as the best ways to use the
medium itself to buy, sell and trade stocks and investment info from
private to public firms.
When we started in 1994 we foresaw that the Internet would change
business and consumer habits forever and since that time have analyzed
all the firms in this space up and down, since before Amazon was Amazon
and Yahoo was Yahoo. And you ain't seen nothing yet!
*
