Inside Wall Street- INKT,SFE,CHNG
Thursday January 28, 1999 (6:07 pm ET)
Microsoft Dumped Inktomi. So What?
By Gene G. Marcial, Business Week
Internet software provider Inktomi Corp (INKT) is not a stock for the faint of heart: In the past five months, it has often jumped or dropped 10 to 15 points in a day--on little provocation. After hitting a high of 178 on Jan. 11, it slid to 148 on Jan. 25. The next day, Microsoft Corp (MSFT) announced that it was phasing out Inktomi's Internet search service as the primary platform for Microsoft's Web network. Inktomi's stock fell almost 20 points, to 129. Is it downhill from here?
No way, say some pros. Although a lot of momentum players bailed out, not a few Inktomi fans bought shares as the price sank. "It wasn't a major setback--just a speed bump,'' insists John Leo, who heads Northern Technology Fund, a unit of Northern Trust. "We view the big drop as a terrific buying opportunity, so we're adding to our position.''
Analysts Rakesh Sood and Michael Parekh at Goldman Sachs stood pat, reiterating their positive "market outperform'' rating on Inktomi. Leo notes that Microsoft's move to replace Inktomi's search technology with that of AltaVista, a Web-search and navigation site of Compaq Computer, reflects the business relationship that Microsoft is continuing to build with Compaq--Microsoft's largest customer. "It's not indicative of any concern about Inktomi's technology,'' he adds.
Microsoft makes up less than 5% of Inktomi's revenues, says Leo, and he's sure Inktomi can recoup the loss through new customers. He notes that Inktomi provides its search technology to 18 big companies, including Yahoo!, America Online, and Lycos.
Apart from its search technology, Inktomi also has a "traffic server'' product that stores data close to where it is needed by Internet users. Inktomi has a new product that will provide "comparison shopping,'' to compare prices and information on various products online.
Last year, Inktomi's sales quadrupled, to $20.4 million, and Leo expects them to continue growing--to $60 million in 1999 and $110 million to $125 million in 2000. Still in the red, Inktomi should break even by 2000, he figures.
Safeguard's Hoard of IPOs
Safeguard Scientifics (SFE) has little to do with safety or science: It is a venture-capital company that acquires stakes in young info-tech outfits. After funding and managing their development, Safeguard takes them public.
"Safeguard is a way to participate in the venture-capital business and benefit from the huge returns,'' says Stuart Rudick of Rudick Asset Management in Mill Valley, Calif. Currently trading at 37, the stock is worth 55, says Rudick, based on the value of its portfolio.
Sherri Wolf, an analyst at Adams, Harkness & Hill in Boston thinks the value of Safeguard's portfolio of private companies has yet to be recognized. To determine Safeguard's value, investors will need to assess both its public and private holdings, she argues.
"We have identified three [initial public offering] prospects that could greatly enhance Safeguard's bottom line,'' says Wolf. They are on deck to go public this year "in hot markets, such as business-to-business Internet commerce,'' she says. One of them is Internet Capital Group, which already owns 15 Internet companies, including 50% of VerticalNet. This company has filed for an IPO later this year.
Internet Capital, also scheduled to go public this year, has attracted high-powered investors GE Capital and Comcast, which have put in seed money. "Internet Capital will have the largest impact [as an IPO] if exuberance about the Net continues,'' says Wolf. "1999 will be a great year for Safeguard.''
This Coin Handler Is on a Roll
Cash Technologies (CHNG), which makes machines that deal with loose coins, is getting to be worth a pretty penny: From 5 1/2 in mid-October, the shares have nearly doubled, to 10 7/16. What's driving up the price?
The coming of the euro has produced a big potential market for Cash Technologies' unusual coin-processing machines, says analyst Casey Stern of Starr Securities in New York. About 70 billion coins will have to be redeemed in Europe when the new currency circulates in July, 2002, he notes, so demand for Cash Tech's self-service CoinBank deposit machines should surge. The company has reached an agreement with Bank Austria to install its machines on a trial basis. Since the machines are software-driven, they allow any type of coins to be programmed for acceptance now and converted for euro coins later.
The machine sorts and counts coins and then dispenses either a credit through an automated teller machine or a receipt redeemable in cash. Cash Tech gets a 7% consumer fee, which it splits with the bank or store where the machine is installed.
The difference between CoinBank and the machine of rival Coinstar, says Stern, is that CoinBank provides other uses too, including credit-card transactions, payment of bills, and dispensing prepaid phone cards. He puts Cash Tech revenues at $60 million to $70 million in 1999 and $110 million to $150 million in 2000. Cash Tech will lose money this year, but he expects it will earn 50 cents to $1 a share in 2000. His 12-month target for the stock: 20.
For more from the world's best-selling business magazine and winner of the National Magazine Award for General Excellence for two of the past four years, visit businessweek.com .
|
