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To: Educator who wrote (7582)	4/9/1999 9:40:00 AM
From: Platter	Read Replies (2) \| Respond to of 29970

From IIonline..TAUB TALK: Spotting Potential Internet Losers (4/9/99) So, how do internet investors pick future winners? Well, many of them start off by singling out the ones that are already making money, such as Yahoo (NASDAQ: YHOO) and America Online (NYSE: AOL). Then , they close their eyes and hope the music doesn't stop. However, George Putnam, editor of The Turnaround Letter figures a good way to pick the potential losers is to focus on the ones that have recently taken on a lot of debt. Like this Article? Now, most of the debt has been in the form of convertibles. So, many investors just figure that the biggest risk to these companies is potential equity dilution once investors convert to common. Ah, but what if many investors don't choose to convert and these convertibles remain as debt vehicles? Then what happens? Look out, says Putnam. You see, if you have no debt and sales and earnings don't live up to expectations, common shareholders will simply see their shares sink. 'A company financed solely by stock will have some disappointed shareholders, but it can go on for quite a long time without profits,' Putnam points out. However, with debt, companies must meet timely interest and principal payments. The risk: bankruptcy. 'Debt can be particularly troublesome for high technology companies that tend to be buffeted by rapid industry change,' Putnam writes. And if you think the future is unpredictable for tech companies, it is nearly impossible to imagine for internet companies. Therefore, debt could be especially troublesome and constraining for internet companies because it limits flexibility; companies must concentrate on generating current cash flow. Which companies are most sensitive to high debt? Putnam singles out six. One of the most vulnerable: Amazon.com (NASDAQ: AMZN). It took on $1.25 billion worth of debt. This is more than two times Amazon's 1998 revenue of $610 million. AtHome (NASDAQ: ATHM) has $437 million in zero coupon debt. This is more than 9 times its 1998 revenue of $48 million. Yikes! DoubleClick (NASDAQ: DCLK) is also vulnerable. Its $200 million of debt exceeds revenue by about 2.5 times. What's more, its annual interest expense computes to 11.8% of 1998 revenue. Then there's CNET (NASDAQ: CNET). Debt exceeds 1998 revenue by more than three times and interest accounts for 15.3% of 1998 revenue. It's worse for Exodus Communications (NASDAQ: EXDS). It has $250 million in debt, or nearly five times 1998 revenue of $53 million. This works out to 23.7% of revenue. Rounding out the group: Citrix Systems (NASDAQ: CTXS). Its zero coupon debt is $292 million but revenue was $249 million. These companies' business models better be accurate, that's all I say. Like this Article?