Mark get them while they're cheap.
>>San Francisco, March 24 (Bloomberg) -- It would be tough to
find an industry that's hotter than the Internet.
Online retailer Amazon.com Inc., which has been in business
just five years, is poised to pass $1 billion in sales this year.
Only 15 U.S. companies have a market value that tops the $116
billion of America Online Inc., the biggest online service.
Meanwhile, Internet takeover targets such as Lycos Inc., the No.
3 Internet directory, command stock prices that just a few years
ago were reserved for Fortune 500 companies.
While first-quarter revenue could blow past all forecasts,
what gets lost amid the hype is that this is an industry not only
loaded with promise, but problems. One example: Amazon.com, which
has never made a profit, could face pressure from the likes of
Buy.com Inc., a closely held company that plans to sell huge
amounts of merchandise at little profit and make up the
difference with ad sales. Price cutting could leave money-losing
online merchants with losses deeper than anyone expects.
''This is a neutron bomb going off and this bomb is going to
have major repercussions,'' said Chris MacAskill, chief executive
of Computer Literacy Inc., an online seller of books for
technical professionals.
As far as many investors are concerned, warnings like that
aren't enough reason to stop plunking down money for Internet
shares -- at least not yet. The notion that millions of consumers
are going to jump on line to shop and seek entertainment still
gets most of the attention.
Hooking Up
The forecasts certainly are persuasive. By year-end, a third
of U.S. households are expected to be on line and by 2003 two-
thirds will be wired to cyberspace, according to a study this
week by the Yankee Group, a market researcher based in Boston.
The Inter@ctive Week Index of 50 Internet-related stocks has
climbed 29 percent this year, compared with a 3.2 percent
increase in the Standard & Poor's 500 Index.
Yet even investors who are optimistic about the Internet
acknowledge that many stocks are expensive and that the time will
come when Internet companies will have to generate the earnings
to justify the share prices.
''You have a big problem with valuation,'' said Nicholas
Moore, an analyst at Jurika & Voyles LP. ''I know people are
bored of hearing this, but it's still as big a problem as
before.''
Moore said mergers and acquisitions speculation has given
many Internet shares a lift. High-speed access provider At Home
Corp., for example, agreed in January to pay a 57 percent premium
for No. 2 Internet directory Excite Inc. Also in January, Yahoo!
agreed to buy GeoCities, which provides free Web pages, for a 52
percent premium.
''You could really make a case for almost all Internet
companies being involved in some sort of M&A activity,'' said
Ryan Jacob, a money manager with the Internet Fund.
IPO Flurry
With the stocks still in the stratosphere, companies with
any shot at going public are giving it a go.
So far this year, at least 16 Internet-related companies
have sold shares to the public. At least 54 others have filed
stock-sale plans with the U.S. Securities and Exchange
Commission, according to CommScan LLC, a New York research firm.
The blitz of initial public offerings could dull the
public's appetite for new and untested Internet stocks, one
analyst said.
''There's a decreasing level of uniqueness in the deals that
are out there,'' said David Menlow, president of IPO Financial
Network. ''We're starting to see Internet clones, and the market
will have very little patience with that.''
Whatever the risk may be in buying Internet stocks, the
industry leaders have offered mostly rosy forecasts for the first
quarter.
Amazon.com
Amazon.com told investors earlier this quarter that revenue
would top the fourth quarter's $253 million. The company again
said that it wouldn't make a profit any time soon as it spends on
marketing and new product offerings.
Amazon.com said in February that it owned 46 percent of
closely held Drugstore.com, which sells pharmaceuticals and
beauty products on line. Investors look for the company to move
into software and consumer electronics.
While Web retailers may face price competition, online
auctioneer eBay Inc. is a different creature. It's one of the few
profitable Internet companies, with net income of $2.4 million
last year. Investors expect the company to benefit as more people
bid for goods on line and from increased international business.
EBay this year has introduced auctions for Canada and the U.K.,
and announced plans for auctions in Australia.
America Online has said new members are signing up in record
numbers so far this year. The company said in February that it
had more than 16 million users.
Expanding the membership rolls allows AOL to command high
rates from advertisers on its proprietary network, boosting
revenue, said Andy Abrams, a money manager with CWH Associates.
Other investors also said that AOL's $10 billion purchase of
Internet software company Netscape Communications Corp. earlier
this month will make it a stronger rival to Microsoft Corp.'s MSN
network and No. 1 Web search company Yahoo! Inc.
''With Netscape, they'll be able to do a lot more things
than they did just one year ago,'' said Alexander Cheung, a money
manager with the Monument Internet Fund.
Company 1st-Qtr Year-Ago Number of
Estimate EPS Analysts
Amazon.com $(0.29) $(0.07) 19
America Online* 0.09 0.04 29
At Home (0.07) (0.10) 11
Broadcast.com (0.12) (0.12) 6
CMGI (0.23) (0.28) 6
Cnet Inc. 0.03 (0.19) 10
Doubleclick Inc. (0.26) (0.31) 8
EarthLink Network (0.22) (0.28) 6
eBay 0.02 0.01 11
Excite 0.05 (0.14) 14
Inktomi% (0.12) (0.13) 5
Infoseek& (0.41) (0.05) 9
Lycos^ (0.03) (0.08) 17
Mindspring Ent. 0.15 0.04 6
Network Solutions 0.24 0.13 8
Yahoo 0.08 0.02 24
*--fiscal third quarter ending March
--fiscal third quarter ending April
%--fiscal second quarter ending March
&--fiscal second quarter ending March
^--fiscal third quarter ending April
Estimates provided by First Call Corp.
18:36:23 03/24/1999
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