Sun, before you short, don't forget that with market caps like these they can buy profit for stock in a heartbeat...Just think if Sears, instead of dumping the catalog business, had moved it to Internet. With their name they would be sitting on a $500 share price. Sears is a great income investment. Sears.com would be explosive.
I agree with you completely and appreciate the advice. The time to short these guys when the bubble bursts. That is when the supply of Internet stock offerings and the demand for them meet. Because that will cause the stock price to remain stable. But since people are not buying these stocks for stability and are buying them because these guys are rocketting up, the price stability will be the first stage of the down fall. Your sears.com example is an example of how the internet bubble can increase the supply of internet shares. Not everyone is stupid; many people are starting up interenet companies not because they think they can make money from the business, but because they can make money from selling shares to the public. Egghead, K-Tell, and Delia are examples of companies that are increasing their Internet presence only to derive their stock price higher, IMO. Playing the internets (long or short) is like playing with live dynamite. To say it is not easy, is an understatement.
Along the same lines are your intelligent reasoning on "buying profits", I'd like to share with you portions of an email that a friend sent me. This is a long article and I am not going to include all of it. The point of the article is clear early on, so feel free not to read it all.
Sun Tzu
====================
"If you gave it away, would you be satisfied?" - Sammy Hagar, Would You Do it For Free?
____________________________
A few months ago I suggested that in a world where the stock market seems to value revenues, page views, and growth more than profits, the ultimate business model would be to sell dollars for $0.85. As the argument went, you could always make up the difference through ad revenues. Where there is a will there is a way. Scott Blum, the CEO of Buy.Com, has introduced a model that is not too different from the one I imagined. He sells consumer products at or below cost, is creating a brand synonymous with low price, and hopes to become the leading e-commerce portal. He even plans to make up the difference through advertising.
While most web sites are shifting from a content model to a commerce model, Scott is using commerce to drive eyeballs. Buy.Com first opened its virtual doors as BuyComp, a company that focused on selling computer products at extremely low prices. As Blum has a passionate aversion to touching inventory, he chose a model in which products were dropshipped directly from the wholesaler. In mid-November, BuyComp acquired SpeedServ, a lesser-known online retailer of books and video, from the powerful Ingram distribution family. As a result of this product expansion, BuyComp changed its name to Buy.Com and is now planning to expand into multiple product categories. The company has purchased over 2,000 domain names that begin with B-U-Y, which may give some indication of their future direction. Buy.Com's tag line, The Lowest Prices On Earth, may be the most precise positioning statement of any company that ever existed. The company is ruthlessly committed to being the low price leader -- even if this means they lose money on every sale. They have gone so far as to develop technology that searches competitor's sites (as well as the shopping agents/bots), to make sure they have the lowest prices on the Web.
Perhaps the best example of their low-price commitment is the Palm III Organizer from 3Com. The product currently sells for $248.95 on Buy.com, but has sold for as low as $209 on the site. Compare that to $299.95 at Cyberian Outpost, $329.95 at CompUSA, and $369.00 on 3Com's own web site (prices as of Dec. 10, 1998). How successful is Buy.Com? This all depends on how you measure success. The CEO states that the company sold $15 million worth of products in October and is forecasting sales of $19 million in December. At this pace he believes Buy.Com can break Compaq's first year sales record of $111M, making it the fastest growing company in U.S. history. Of course, one could argue that revenues are not the proper metric for measuring the success of a company with a potentially negative gross margin. Over the long run, industries with low margins have traditionally sold at significantly low price/sales ratios, with most distributors trading well below 1 times sales. Besides, if all you are interested in is revenue growth, you might want to sell a high priced commodity like oil or steel below cost. You could probably hit $1B in your first year. As you might suspect, Buy.com's competitors shrug it off as a farce, often comparing the CEO to "Crazie Eddie," the low-price leader in a previous retailing revolution who eventually found his way to prison. The similarities do exist, as Blum is no stranger to controversy. A company he founded earlier in his career, Pinnacle Micro, was involved in some questionable behavior that raised the interest of the SEC. Again mirroring Mr. Eddie, Blum is as confident and boisterous as they come. He has openly challenged Amazon.com as his primary competitor, and has even reserved the URL www.10percentoffamazon.com for an upcoming promotion... |
