The Web Report ˆ Volume 2, Issue #13
This week, the NETDEX index closed at a new high of 970.86, up 7.2% from
last week and up approximately 590% over the same period last year.
For comparison, the NASDAQ ended the week up 1.1% from last week, and up
34.1% 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 $362 billion. This
compares to the top 20 media companies, which have a combined market
capitalization of approximately $484 billion. In the retail category,
Wal-Mart‚s market capitalization is approximately $205 billion.
DISCONCERTING LACK OF STOCK SCRUTINY - We are distressed by the apparent
lack of differentiation among Internet stocks by investors. Every
Internet-related IPO seems to go up with little regard for the company
behind the stock. The big Internet companies appear to be growing into
new stock highs, just as the Dow has hit 10,000. It‚s the smaller
companies with big valuations that scare us. Rather than risk being the
greater fool today, we continue to narrow our focus on accumulating
fewer stocks, including Amazon.com, SportsLine, and Lycos. We expect
these stocks, and essentially all of our Buy rated stocks, will post
positive surprises as reporting season starts next week. This should
help provide some support for the group.
YAHOO! REPORTS NEXT WEEK - We have confidence that Yahoo! will continue
to beat our revenue and earnings expectations. With a reach of more than
50 million global users, Yahoo! has achieved that status of being a
global branded network. We believe the challenge is how to capture more
time and economic value from each person. Yahoo! has over 35 million
registered users, which represent the core of its audience and, in our
opinion, the key to its ability to make more money through better direct
marketing. We believe the pending GeoCities acquisition pushes Yahoo!
towards becoming more of a network than a portal, offering more
community services to keep users spending more time on its sites. We
believe Yahoo! risks losing mind and market share if it does not exploit
its inflated currency to grow into its valuation. As such, we would not
be surprised by a Broadcast.com acquisition.
AOL TAKES ANOTHER TECHNOLOGY STEP ˆ We expect another record quarter in
March, with upside to all forward estimates. Contrary to some
confusion, we understand the SEC has already approved the pooling
treatment of the Netscape acquisition, suggesting no incremental
amortization charges to our estimates. AOL keeps growing into its
roughly $160 billion market value. AOL closed of its Netscape merger
and announced plans to integrate Netscape as part of a broader
re-organization, with the new AOL comprised of four divisions: The
Interactive Services Group (AOL, CompServe, broadband, etc.), The
Interactive Properties Group (ICQ, Digital City, MovieFone, etc.), The
Netscape Enterprise Group (focus on Netscape‚s corporate customers and
the strategic relationship with Sun), and The AOL International Group.
With Netscape, AOL moves further to capturing more business at work.
With CompuServe , Web-based services like ICQ, and now the Netscape
browser and Netcenter service, AOL is catching you at the office. With
Netscape‚s server software business, AOL will now help its commerce
partners move faster. AOL can essentially offer the virtual store, the
cash register, and the customers, leaving just the products to be
supplied by the retailer. We like the risk/reward of how the deal is
structured, with Sun covering much of the risk. Sun will resell
Netscape e-commerce software, and pay AOL rather high minimums. In terms
of rewards, AOL will earn money directly from software sales and
indirectly from more commerce flowing through AOL. In addition, Sun can
help AOL move its service to the emerging Web-appliance platforms. In
sum, we still view AOL as the core holding, although we are more focused
on accumulating other stocks short term.
SPORTSLINE ˆ We expect strong March quarter results will provide a
positive catalyst. We wonder why the stock did not react to strong
traffic news this week. SportsLine announced new all-time highs for
both traffic and advertising sales during the March Madness. During the
23 days of March Madness, SportsLine averaged 9.3 million page views per
day and generated $3 million in sponsorship revenue. These data suggest
the company will beat our March quarter estimates. Starting in March
and looking forward, we expect SPLN will continue to close the gap with
ESPN. We suspect the stock is suffering from the new girl/guy in high
school effect. With a new IPO jumping up wildly every day, it is easy
to forget our old friends even when they are performing well in school.
E-Tailing Update ˆ Lauren Cooks Levitan 415-693-3309,
mailto:lauren@rsco.com
ANOTHER AMAZON GROWTH SPURT - Amazon indicated that it surpassed its 8
millionth customer during the first quarter, a 29% increase from last
quarter and well above our estimate of 6.8 million customers at the end
of Q1. We note that our Q1 revenue estimate of $260 million implies only
3% sequential growth and is based on the much smaller customer base. We
view this as a significant positive surprise relative to recent concerns
based on a misunderstanding of survey data, in our view.
AMAZON INVESTS IN PETS.COM - Amazon announced it agreed to acquire a 50%
stake in Pets.com. We believe this investment, which follows the recent
announcement of Amazon‚s 46% stake in drug e-tailer Drugstore.com,
should allow Amazon to benefit from increased penetration of on-line
shopping across a growing range of products. Terms of the deal have not
been disclosed, but we suspect that Pets.com, a venture-based e-tailer
of a wide variety of pet care products, will pay fees to Amazon for
customers directed there from Amazon‚s site. We do not yet know if
Pets.com will receive positioning on the Amazon home page as does
Drugstore.com. The key is that Amazon‚s scope continues to expand,
thereby establishing Amazon as a true giant and the first true e-tail
portal
AMAZON JUMPS INTO AUCTIONS - Amazon surprised us a bit by launching its
person-to-person auction service. This is a big market with a great,
fee-based business model that should enable multiple competitors, but we
had been wondering how to make it more appealing to the mass Web
market. Amazon brings its large audience, its trusted brand, its
easy-to-use technology, including on-click bidding and the integration
of auction suggestions into the company‚s traditional selling areas. We
expect this could become a significant business for Amazon.
We believe Amazon‚s brand allows the company to sell anything and
everything on the Web, becoming e-tailing‚s leading franchise. We
believe all three announcements are further evidence that Amazon can
grow into its valuation and we continue to rate the shares of Amazon a
Strong Buy.
CATALOG COMPANIES EMERGING AS E-TAILING PLAYERS - Successful e-tailers
must control the entire customer experience, which includes
direct-to-consumer fulfillment and customer service capabilities.
E-tailing franchises Amazon and eToys have taken the approach of
building out their infrastructure, but many other e-tailers lack the
necessary financial resources to do so. In such cases, we would not be
surprised to see more acquisition attempts of catalog companies by
retailers and e-tailers, similar to Federated Stores‚ planned
acquisition of Fingerhut. We believe the several e-tailers in which
Fingerhut has made strategic investments will be able to jump-start
their operations by piggybacking on the company's infrastructure. When
acquisition is not economically viable, e-tailers have little option but
to outsource. However, we view outsourcing as a less attractive
alternative because it effectively limits an e-tailer's ability to
control the quality of its services. While we believe there is a
short-term market for catalog companies such as Hanover Direct to offer
3rd party order fulfillment and other logistical services, we believe
the most successful e-tailers will mimic the most successful retailers
that have brought those operations in-house.
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Rating 3/31 3/25 1-Wk 52-Wk Chg
Chg High 52Wk Hi
3/31 - to 3/31
3/25 Price
Amazon AMZN SBUY 172 1/5 139 7/8 23% 199 1/8 -13.5%
Am Online AOL SBUY 147 126 1/2 16% 147 0.0%
CDnow CDNW MP 16 1/8 14 3/8 12% 39 1/4 -58.9%
CMGI CMGI LTA 183 187 4/9 -2% 226 -19.0%
CNET CNET BUY 92 1/8 97 3/8 -5% 123 3/8 -25.3%
Dig River DRIV BUY 40 35 5/8 12% 61 3/8 -34.8%
DbleClick DCLK BUY 182 184 3/4 -1% 200 -9.0%
Ebay EBAY BUY 137 1/3 159 3/8 -14% 177 3/8 -22.6%
Egghead EGGS BUY 18 1/5 20 1/8 -10% 40 1/4 -54.8%
E*Trade EGRP BUY 58 1/3 56 1/2 3% 66 3/7 -12.2%
Excite XCIT NR 140 133 1/3 5% 141 5/8 -1.1%
Gemstar GMST BUY 75 1/4 60 25% 69 5/8 8.1%
Getty GETY BUY 21 23 1/3 -10% 28 1/4 -25.7%
Lycos LCOS BUY 86 92 5/8 -7% 145 3/8 -40.8%
Modem Media Poppe
Tyson MMPT BUY 42 7/8 43 0% 55 1/8 -22.2%
NetGravity NETG BUY 41 3/8 29 43% 35 3/8 17.0%
Ntwrk Sols NSOL BUY 105 3/4 101 5% 153 3/4 -31.2%
NewsEdge NEWZ MP 8 1/2 9 -6% 19 3/4 -57.0%
Onsale ONSL BUY 33 4/7 36 1/8 -7% 108 -68.9%
Prv Travel PTVL BUY 19 17 2/3 7% 44 -56.8%
Infoseek SEEK MP 74 81 1/8 -9% 100 -26.0%
SprtsLnUSA SPLN BUY 45 5/8 46 1/8 -1% 59 1/4 -23.0%
TicketMaster Online
CitySearch TMCS NR 33 5/8 35 1/8 -4% 80 1/2 -58.2%
Yahoo! YHOO BUY 168 3/8 179 -6% 222 1/2 -24.3%
NETDEX Index
NETDEX 970.86 905.95 7.2% 970.86 0.0%
KEBDEX Index
KEBDEX 1,242.09 1,154.61 7.6% 1,154.61 7.6%
NASDAQ Composite Index
COMQ 2,461.40 2,434.80 1.1% N/A 40.2%(1)
(1) Change based on last 12-month's
performance.
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Source: AT Financial Information and BRS Estimates
BancBoston Robertson Stephens maintains a market in the shares of
Amazon.com, Cisco Systems, CMG, CNET, Preview Travel, Digital River,
DoubleClick, eBay, Egghead.com, E*Trade, Excite, Gemstar, Getty,
Infoseek, Lycos, Modem Media, NetGravity, Network Solutions, NewsEdge,
N2K, ONSALE, Preview Travel, SportsLine, TicketMaster Online-CitySearch,
Yahoo! and has been a managing or comanaging underwriter or has
privately placed securities of Digital River, eBay, Egghead.com,
E*Trade, Excite, Modem Media, NetGravity, ONSALE, Preview Travel,
TicketMaster Online-CitySearch and SportsLine within the past three
years.
For additional information, call your BancBoston Robertson Stephens
representative at (415) 781-9700.
Rating Definitions: The following are basic definitions for our
recommendation ratings.
Strong Buy ˆ Rating for a stock, which we believe could have
significant, positive price movement near-term, and/or represents
outstanding competitive and business model potential. Therefore, we
would be aggressive buyers of the stock.
Buy ˆ Rating for a stock, which we recommend buying, however believe
there may not be near-term news or events to move the stock price.
Long-Term Attractive ˆ Rating for a stock, which we believe could have
long-term value, however we would not necessarily recommend buying.
Market Performer ˆ Rating for a stock, which we believe will perform at,
or below, market levels.
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