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To: Sol Rosenburg who wrote (41414)	2/20/1999 3:00:00 PM
From: Glenn D. Rudolph	Respond to of 164685

2 [Note to readers: In an effort to remain true to our original missive that “less is more” (and because we recognize that time has become an even more valuable commodity in the last few months), we have re-embraced the concept of bite-size research and made The Internet Capitalist shorter, but hopefully no less valuable. As always, back issues can be viewed on SG Cowen's Web site at www.sgcowen.com/rs/rs5.html.] The Week Web Wreck It has been said that talent is its own expectation, a corollary to which we would add that success breeds expectation of success. This is no where more true than in the Uber-sector of Internet stocks. They go up, so they must go up. Or at least that was true up until the last few weeks. Then the Lycos/USA Networks deal provided the excuse for folks to take some profits and drive these stocks into the correction that they are currently experiencing. The list of things that we can be sure of, death, taxes, and Internet stocks that go up, can now be officially shortened by one. Internet stocks, we now know with conviction, do go down. Some even aggressively so. YHOO, AMZN, BCST, and INKT are all off 40% or more from their highs, with EBAY and ATHM in the 20+% range off their high and AOL keeping its reputation as one of the more stable of the Internet stocks (thank you S&P 500 committee) at 12% off its high. Though professional chin scratchers everywhere can claim “credit” for calling the latest hyper deflation of Internet shares, we thought it would be helpful instead to re-visit some of the basic assumptions we, as Internet sector bulls, have held fast to over the last few years. The effort may allow us to ferret out the conceits in our thinking about these names and help us determine if we've come to a genuine fork in the road or merely a bump. And because we think there is never one single reason for this type of sector sell-off, we think it's pertinent as well to ask a few questions: (1) has there been any material new sector-related information? and (2) has the valuation profile of this group changed permanently? Though certainly the type of sell-off the Internet shares are currently experiencing is never the result of a single reason; in markets that are driven by momentum, psychology plays an important role in all moves up or down. Asymmetric increases beget asymmetric decreases. The right question long-term oriented Internet investors should ask themselves is: is this a buying opportunity or a structural shift in the investment profile for these Internet stocks? From where we sit, we are of the mind that it is a buying opportunity. Let us explain. The initial and quite popular explanation for the latest down draft in the Net stocks was that the USA/Lycos deal afforded very little (and certainly none now) premium to the Internet assets that USA aggregated, and this marks the end of the road for valuations going forward. After all, if Barry Diller isn't willing to pay a premium, why should we? Compound that with the enormous complexity of the deal (we've got the abacus out and are all the way over to the blue column on determining what was paid for what), and you've got a great excuse (notice we didn't say reason) for the down draft in this sector. But since we're more interested in the long term, we'll start by answering our first question: has there been any material new sector-related information? The answer is “yes”, but the new information has been damn