To: Doug Fowler (3094 )
From: chirodoc
Sunday, Jan 3 1999 2:43AM ET
Reply # of 3095
INTERNET STOCK OUTLOOK: THE ONES TO WATCH IN 1999!
by Chris Agarwal
NTERNET STOCK NEWS™
internetstocknews.com
The Premiere Internet Industry Communication Vehicle
December 31, 1998
As we say goodbye to what may go down as the most notable year this decade we
can't help but shed a tear. We have long believed that the Internet would some day be
realized by the masses as an amazing opportunity for growth. In 1998 investors finally
started to open their eyes to this fact. When I started frequenting the Internet years ago
there was no such thing as secure e-commerce, there were no Snap.com ads on
television, and I had never heard of Team Lycos basketball. I'm sure we all remember
the days of the BBS in the early 90's, connecting to America Online with a 14.4 modem
(Oh how slow it was!), using Fetch, Archie, Gopher, Mosaic, and Telnet. Remember
the days when one's destinations for web search were usually Yahoo! or Alta Vista? It
seems like only yesterday, doesn't it?
Times have definitely changed. Just last week I watched the Insight.com bowl and
checked the highlights at CBS Sportsline, I watched the impeachment hearing highlights
using my Real Player, and I purchased all my Christmas presents from Amazon.com,
Onsale, and eToys using my Yahoo! Visa credit card. It's sad to see greed and
bureaucracy enter the world we once new as the World Wide Wait and to some extent
I actually miss the Internet being so useless and slow. I think Kurt Cobain, the former
vocalist for the rock band, Nirvana, stated it best when he said “I miss the comfort in
being sad.” The Internet and specifically, World Wide Web, used to be a novelty that
was enjoyable to use from time to time to find information that I could find nowhere
else. Now it is a medium of mass communication far more efficient than television, radio,
or print media and companies such as America Online and Yahoo! are considered some
of the largest media companies in the world.
I can cry and moan all day, but it's not going to help. Tomorrow comes the year 1999.
Everyone now knows about the Internet and is ready to bid up Internet stocks to
ridiculous levels. For those of you who have been following us since 1997 when we had
the infamous name which we won't dare disclose in fear of humiliation, it is now time to
pay attention. The stakes have been increased 100-fold. No longer are Internet stocks
easy buys and holds. They are all over television and almost any company even
remotely related to the Internet is immediately bid up to a multi-million dollar valuation.
Remember when we were talking about CMGI at $30 a share? 24/7 Media at $6 a
share? Peapod at $3.50 a share? Infoseek at $23? Excite at $25? Real Networks at
$18? Do you remember when Onsale was priced at $12 and when CDNow at $8
looked overvalued? Those were the days, my friends. Those were the days when
Internet Stock News was just a hobby, when I could look forward to spending my
weekends on San Diego beaches and not answering phone calls from the media. Those
were the days when we had just over 100 subscribers, all of which I knew by a names
not including an “@” symbol.
1 ½ years, 55 IPOs, $23 billion in market capitalizations, 30,000 subscribers, 10
employees and a few interviews later, here we stand. We are now considering opening
up a corporate office in sunny Carlsbad, California and doing our own public offering to
fund our new Internet ventures such as free real time quotes on our upcoming web site.
This week, all of our editors came together and picked a group of companies that we
thought would fare best in 1999. What we were looking for was mainly evidence to
show that these companies would benefit by the further acceptance of the Internet by
the general population because of their positions as leaders in their Internet sectors.
These are only publicly traded companies and if we had to throw private companies into
the mix, there would, no doubt, be a different story. However, investors have to spend
their money on something and after four straight years of bull markets, they have a lot of
money to spend. Just as a quick note, the editors and holding company of this
newsletter do hold positions in some of these stocks listed here. However, whether we
held positions in these or not, we would choose the same companies. After all, it is our
job to analyze the Internet sector on a daily basis so you can bet that we put our money
where our mouth is. Here we go!
(In no particular order)
At Home (NASDAQ: ATHM): home.net, At Home is the leading high
speed Internet access company. Using cable modems to provide access, the company
can leverage users into dollars using a content network revenue model similar to what
media giants such as Time Warner and Viacom make billions from. At Home provides
Internet access at over 100x what your average ISP can provide and the stock is up
over 325% this year. Remember that almost every single year since inception, AOL has
increased in price upwards of several hundred percent. Looks to us like At Home is just
getting started.
CMGI (NASDAQ: CMGI): cmgi.com, CMGI is a publicly traded Internet
venture capital company. If you don't hear about this one in one year's time, we deserve
to be shot. This company owns large positions up to 100% complete ownership in over
20 leading Internet companies involved in content, e-commerce, advertising, marketing,
software, you name it! They are extremely profitable with over $1 per share in the past
two quarters and trade at a P/E ratio of around 50. The company has had the insight to
invest in AOL, Lycos, GeoCities, and many others and has received an almost 5000%
return on equity. This is an Internet giant that very few know about.
Etrade (NASDAQ: EGRP): etrade.com, You are probably all familiar with
this company. Etrade is the leading online broker. There are very few industries that can
reap large amounts of scalability from the Internet and online trading is, in our view,
currently #1. Simply connecting the trading system with a web interface and supporting
it with staff and marketing has allowed this company to become extremely profitable. As
other leaders in their categories such as Ebay, Yahoo!, and Amazon.com soar, what
happened to Etrade? We think that after a few run-ups and corrections the leaders will
be given higher valuations than usual essentially making them “Blue Chip” Internet
stocks. Etrade is the leader in its category and can easily use its clout to leverage
revenues out of many other finance-related practices.
Excite (NASDAQ: XCIT): excite.com , Everyone knows what Excite is.
The question is why hasn't Excite joined the ranks of the high-flying Internet stocks?
Share dilution and speculation is the answer. Ebay has some 3 million shares trading and
Ubid has less than 2 million. When millions of unsavvy investors place market orders for
these stocks they are bound to fly sky high. Market capitalizations are based on shares
outstanding but created from the demand applied to the float. Therefore, you get some
silly valuations. Any long term investor knows that Excite is considered to be #2 in the
Internet portal race and that, if any company deserves the some $15 billion valuation
given to Ebay, it is this one. When the shake out comes around and we know it will, the
high-flying low-float stocks will tumble downwards and the institutions will look for the
leaders in their category who have a history of knowing how to leverage users into
dollars. We think that they need not look further than Excite.
SportsLine USA (NASDAQ: SPLN): sportsline.com , This company is
working on #2 or 3 in the online Sports content sector and competes with ESPN.com
and CNNSI.com for online sports network. As the major players have clout, CBS has
branded this company and recently increased its ownership to over 10% with more
warrants purchasable at up to $30 per share. Sports is a huge industry. It will take years
for real sports fans to flock online but those years will come quickly. This company is
the first pure-play Internet sports brand similar to the pure-plays of Yahoo!, Ebay, or
Amazon.com that have been given high valuations. They suffered some because of the
cold Football season and non-existent basketball season but we think they are still a
strong contender. When sports get hot again, expect to see CBS SportsLine ads almost
everywhere and expect the fools who watch them, whether it be individual investors or
fund managers to go running to their trading stations.
Ticketmaster/CitysearchOnline (NASDAQ: TMCS): citysearch.com , If
there was ever a company whose growth prospects were ignored by the media, this is
it. While everyone says that the portal industry is changing and that the local portal
business will be huge, have they forgotten who is the leader in that industry? CitySearch
provides a brand name and backing by Barry Diller of USA Networks that we wouldn't
be surprised to see plastered over every wall next year. They are in New York,
Toronto, Nashville, Portland, LA and they are coming to a town near you! What better
way to start using the Internet is there than to visualize its interface as a friendly portal to
your neighborhood stores, activities, and surroundings? Clearly the leader in its
category, based on its market cap. , they have already experienced a behind-the-scenes
run-up twice that of Ubid or half that of Ebay's. Who knew?
Peapod (NASDAQ:PPOD): peapod.com , Once again, if you are looking
for a company that is the leader in its sector and that no one has heard of, here it is.
While most of us continue to shop for groceries by visiting the store braving crowded
parking lots and long lines, there is another type of shopping going on elsewhere in
which the store is brought to you for less! This is Peapod, the leading national online
grocery store. While there is less scalability in this industry then in others, there is little
overhead because there is no physical store needed and less marketing needed because
much can be done online. They have the brand name, the following, and the experience.
If anyone can implement the idea on a national basis, Peapod can.
Real Networks (NASDAQ: RNWK): real.com , Real is the leader in
Internet broadcast media and Internet investors are shallow to say the least. Fickle day
traders and Internet newbies have spent far more on a web site called Broadcast.com
than they have on the content and technology that would even enable that web site to
exist. Real Networks provides broadcast content using the Real Player software
downloaded to over 70 million PC's and specific channels such as Bloomberg and ABC
News. Once broadband access becomes popular, watch out. A partnership with
someone like At Home could be even more scary. We are talking about the media
networks of the future. A buyout may be a strong possibility also. A company like Time
Warner could get their paws on 70 million PC's for chump change if they wanted to.
Will Rob Glaser stubbornly hold out is the question we ask.
DoubleClick (NASDAQ: DCLK): doubleclick.com, This should be a
no-brainer. Internet advertising is supposed to reach billions of dollars by the year 2000.
Who is the leading Internet advertising agency? You guessed it. What type of valuations
do leaders get? Yahoo!'s got $24 billion, Ebay has $10 billion, and Amazon.com has
$17 billion. DoubleClick hasn't even a billion. Go figure.
Onsale (NASDAQ: ONSL): onsale.com , While greedy and
unsophisticated investors place their bets on Ubid, Ebay, Cyberian Outpost,
Amazon.com and other e-tailers, they have almost forgotten about the founder of large
scale e-commerce. While AOL has spent years achieving 15 million subscribers did
someone forget that Onsale has spent far less logging 9 million bids? With a major
alliance with Yahoo! to provide online exchange similar to Ebay as well as small
business auctions and everything from $99 Nintendo 64's to $12,000 Xerox copiers
being sold on their branded site, we think Onsale deserves some more recognition in
1999.
Others worth considering:
Barnesandnoble.com: barnesandnoble.com , This company postponed their
IPO just recently but then their parent company announced plans to purchase Ingram
Book, one of the largest distributors in the world. After selling half its online business to
German media giant Bertelsmann AG, Barnes & Noble will easily have the financial
backing and reach to win the race against Amazon.com and others. Whereas
Amazon.com has been given a $17 billion valuation, Barnes & Noble which would own
half of its online IPO spin-off has been given merely a $2.5 billion valuation. As we get
closer to a possible resumed IPO for the company, we may see the parent stock,
(NASDAQ: BKS), to appreciate quite a bit. After all, the large majority of humans on
this Earth and in this country still think Barnes & Noble when they think of books and
we doubt that will change any time soon.
CNET (NASDAQ: CNWK): cnet.com , CNET is one of the most
frequented online networks on the Internet. It is a true network model more similar to
television than are Yahoo! or Excite and some of that may come from their television
division. With backing from NBC and ownership of much of Snap! we wouldn't be
surprised, once again, for investors to fish up shares as they see the Snap! ads rollout
and revenues come in. At around $50 a share, once again, there is a lot of speculation
that could have occurred here that hasn't as of yet. We still believe strongly that the
traditional media networks will enter the race with full force very soon and that we have
barely scratched the surface of this evolution. Next year will be the year to get in or get
lost in our opinion.
Lycos (NASDAQ: LCOS): lycos.com , Another no–brainer, Lycos is one
of the largest online portal networks in the world. It is rated #3 behind Excite and is still
valued at far less than Ebay, Ubid, Amazon.com and others. We don't think this will last
very long. As the rumor of a CBS buyout last summer, the company will no doubt be
eyed by many media firms. If consolidation hits, an Excite-Lycos partnership or the
similar would also be blockbuster although we doubt Excite's young and therefore
somewhat egotistic founders will let that happen. Nevertheless, once net stocks drop
like flies and the stages are set for another rally, the leaders in terms of user base and
brand name will remain, Yahoo!, Excite!, and Lycos!.
CDNow/Music Boulevard (NASDAQ: CDNW, NASDAQ: NTKI):
cdnow.com , musicboulevard.com , One area that has been left
unpublicized by media is the Internet music industry. Music is huge. MTV continues to
be one of the most watched television stations in the world and American pop music is
much larger in other countries than it is in the U.S. Combine CDNow's vast purchase
networks created from their long-standing history on the Internet along with Music
Boulevard's comprehensive online content and you get the leading online music
company. With rumored buyouts from Time Warner and Barnes & Noble, the pair
trade at far less of a revenue multiple than do other high-flying e-tailers. They won't last
on their own and the larger players can't reach their audience. We think a buyout may
occur this next year.
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ONSALE (NASDAQ: ONSL)
Date: Dec 31
Last Trade
40 1/16
Change
- 3 15/16 (-8.95%)
Bid
40 00
Ask
40 1/16
Volume
01,964,0000
Prev.Close
44 00
Open
42 00
Day Range
40 00 - 43 3/8
Last Tick
0Down0
Avg.Volume
02,839,1000
52-week range: 10 5/8 - 108 00
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