From the NSOL board...
Great News! This just in! In this morning;s Weekly Web Report, BankBoston Analyst Keith Nanjemin predicted that NSOL will hit new highs within weeks when the Q1 earning is out! Enjoy!!!
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01:48am EST 26-Mar-99 BancBoston Robertson Stephens (Benjamin, Keith 415-693-3
KBWK: The Web Report - Volume 2, Issue #12 (Page 1 of 2)
BANCBOSTON ROBERTSON STEPHENS
Keith E. Benjamin, CFA - 415-693-3285
Keith@rsco.com
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March 26, 1999
The Web Report -- Volume 2, Issue #12
This week, the NETDEX index closed at a new high of 905.95, up 3.2% from last
week and up approximately 581.4% over the same period last year. For
comparison, the NASDAQ ended the week down 1.1% from last week, and up 35.3%
from the same date last year.
Our benchmark for valuation remains those non-Internet companies that have been
around long enough to allow calculation of value based on current earnings.
This week the market capitalization of the 67 companies in the NETDEX index is
approximately $313 billion. This compares to the top 20 media companies, which
have a combined market capitalization of approximately $496 billion. In the
retail category, Wal-Mart's market capitalization is approximately $214
billion.
REACHING NEW HIGHS - With the broader stock indexes, from the Dow to the S&P
500, reaching new highs, we wonder whether or not Internet stocks are more or
less risky today. Generally, the Internet stocks seem to move down faster than
the broader averages, but recover faster and farther. In other words, the
volatility has been generally worth the pain. We expect stronger, positive
surprises in March quarter reports for Internet companies than for most other
technology companies. However, this is one of those times in the quarterly or
annual cycle for these stocks that we find it harder to find compelling trading
reasons to buy more than a few stocks. That does not mean we have lost faith
in the overall market or the Internet stocks. In fact, the U.S. economy
appears to be growing more productive with the help of technology, including
the Internet.
HOW BIG IS AOL? - Even with some of the best positioned companies, like AOL,
where we expect strong March quarter results, we wonder whether or not
reporting season will be enough of a catalyst to push the stock to new highs.
Other catalysts could include cable deals and/or more acquisitions, although we
don't expect these to be imminent. However, AOL has a history of sneaking up
on us. For example, it may not be obvious to many how big AOL has become
outside of its base of 16 million members. According to Media Metrix, AOL.com
and Yahoo! reached roughly the same number of unique users at just over 31
million in February. AOL's hottest web-based service is ICQ, a small
acquisition, which has posted dramatic growth to over 28 million users. The
ICQ application alerts you when your friends are also online, allowing you to
send instant messages back and forth. It is a small piece of software
downloaded into your and your friend's browsers. The ICQ client could end up
being a key driver of activity on AOL's Web properties because it is
persistently available to users with or without a browser open, serving as the
on-ramp for PC users switching from spreadsheets to the Web. ICQ can be used
in offices to replace intercoms. AOL has provided Buddy Lists, a similar
application within the core network. With ICQ, you can be reached at work, not
just at home; ICQ steals more time for the Web away from other activities.
While ICQ is a separate brand, it connects you to the AOL network, potentially
allowing instant messages like pages, stock quotes, and other applications.
This constant addition of more services from AOL highlights the growing
importance of its network and the defensibility of its position.
YAHOO! & BROADCAST.COM? - If Yahoo! buys Broadcast.com, would that be good or
bad? We have been concerned that Yahoo! may be challenged to grow its services
fast enough internally to evolve from premier portal to an AOL-like network.
Given its currency, we believe almost any acquisition would appear additive to
earnings sooner than later. While Broadcast.com has a higher cost of goods
sold than Yahoo!, because it needs more capital equipment for its broadcasts,
with Yahoo! it could cut marketing costs. We have wondered if Broadcast.com
could grow into its valuation on its own, even with eventual broadband access
making more people wanting audio and video broadcasts. At work, where speeds
are already faster, we don't expect people to be listening to the Web, which
would cause management challenges. For professionals, Broadcast.com provides
outsourcing capabilities for Web broadcasts of business presentations from
investor conference calls to conferences. Outsourcing has proven a very
profitable business model in the rush to the Web. Long-term, we believe
Broadcast.com would have a more defensible model as part of Yahoo! than alone,
and Yahoo! would be better off adding as much content and service as possible.
We would still not want to buy much more Yahoo! today, but would hold it
regardless.
CONFUSED MONSTERS - We admit our last few e-mails have felt repetitive, but
after the recent run in the group, we find few stocks that we want to
accumulate now. We look for confusion that we expect will be resolved within a
month or so, providing a positive catalyst. At Lycos, we are actually
encouraged that the stock has languished, allowing investors the opportunity to
continue to accumulate. At Amazon.com, seasonality and price competition seem
to have distracted investors from the value of the company's growing audience
and fulfillment capabilities, in our opinion.
NSOL COMPETING STRONGLY DESPITE CONCERNS - Regarding Network Solutions,
we're surprised that many investors seem to remain confused about the impact of
regulatory changes on new competition, which we firmly believe will be
negligible. Within a week or two, we expect the changes to be finalized,
followed by NSOL's report of a big quarter, which we expect will help stabilize
the stock and bring it to new highs. We are still unaware of any large
competitor planning to step in that would change our optimistic stance on the
stock. Deutche Telekom and France Telecom have suggested they may participate.
We believe a few domain name resellers like Register.com and Namesecure will
probably apply for registrar status, but none of these very small companies
seem capable of approaching NSOL's marketing muscle. It is possible that large
companies like AOL or Microsoft may consider becoming registrars, although we
believe that is unlikely. AOL already has a marketing deal with NSOL with
Netscape, and we doubt Microsoft wants to enter a highly regulated business.
Fundamentals seem to be improving in the opposite direction of perception. The
key challenge seems to be keeping customer service improving a bit faster to
keep up with registration and service growth.
BASKETBALL BOOSTING SPLN - Regarding SportsLine, the stock seems to be
resisting reaching new highs, with investors perhaps wondering whether or not
it will catch, beat, or lag behind ESPN. We expect it to close the competitive
gap in March, with the help of CBS promotion on college basketball shows. We
blelieve SportsLine stock continues to waffle with concerns about its
competitive position. We believe results in the near term may push SPLN into a
new category of stocks that appear to be shedding competitive concerns and
achieving faster growth. Recent examples of new members to this club include
CNET and Network Solutions.
E-Tailing Update -- Lauren Cooks Levitan 415-693-3309, lauren@rsco.com
ECLIPSE FOR E-TAILING STAR: We've said it before, but we're going to say it
again: We are confident that Amazon is on track to show sequential revenue
growth during Q1. We believe recent concerns regarding Amazon's post-Christmas
business trends and the company's ability to successfully compete with the
aggressive pricing strategies of other e-tailers will prove unfounded. Despite
a 4% drop in Amazon.com's number of unique users in February, after a 1% drop
in January, according to Media Metrix, it is important to note that these
declines were off of a huge jump up in the month of December. Therefore, we
still expect Amazon to report 10-12% growth in the unique user base for Q1 over
Q4. This growth is consistent with our Q1 sales assumption of $260 million, a
3% increase from Q4. Keep in mind that unique users do not equate directly to
sales given varying trends in purchase rates and average transaction size.
Also keep in mind that Media Metrix does not include international users which
have historically represented a substantial part of Amazon's business. We
continue to be surprised by the strength of Amazon's brand and its being
virtually synonymous with online shopping. As also reflected in the February
Media Metrix results, Amazon continues to attract nearly a quarter of all Web
shoppers even as the Web shopping population grows dramatically. Recognizing
that only the announcement of Q1 results will dissipate these concerns, we
recommend purchase in advance of its earnings release, likely in the third week
of April.
RETAILERS WHO CAN'T BEAT 'EM, MUST JOIN 'EM: We believe it's crunch time for
retailers to establish a presence on-line. We believe the winners will be the
first to achieve dominant market share in a new sector, such as consumables.
Spin-offs from retailers make the most sense to us, such as iTurf's (Delia's)
bid to capture share of the teen apparel market. However in some cases, we
think aggressive e-tailers can capture first-mover advantage and the spin-offs
could miss their window of opportunity. We believe barnesandnoble.com will
struggle in its attempt to catch Amazon, as will other retail spin-offs in
categories where Web-grown e-tailers have the first-mover advantage. In those
cases, we believe the traditional retailers must acquire in order to compete,
though this strategy could be too little too late. We anticipate a frenzy of
activity amongst e-tailers of prescription drugs and wellness products. We lack
enthusiasm for retailers such as Phar-Mor drugstore, which announced it will
link its site with Greentree.com, a content and wellness products e-tailer. In
this category, we think retailers need to think bigger, like Drugstore.com and
PlanetRx. Drugstore.com has strategically aligned itself with Amazon, and
although PlanetRx is still very early in the game, we expect the company to
focus significant resources on this big new market. We are convinced that
timing and focus are crucial to achieving critical mass and becoming a big
player. We expect very few winners to emerge in e-tailing, which has been the
case for traditional retailing.
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