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Technology Stocks : USWeb (USWB) -- Ignore unavailable to you. Want to Upgrade?

To: MarkC who wrote (885)	5/14/1999 10:28:00 AM
From: Rick	Read Replies (2) \| Respond to of 1188

Mark - Here's the best way I can answer your question: 1) The most important thing to investment banks is doing deals and pushing volume on retail trades. Often, these activities are in direct conflict with sound investment advice. 2) Possibly the stupidest, and unfortunately one of the most common, mistakes an individual investor can make is paying attention to the analyst reccomendations - pure and simple, they don't work for you, they aren't trying to help you make money, and often their agenda is in direct conflict with your goal to make money. 3) It is only common sense that if a firm or it's customers are in the process of building a position in a stock, they do not push, hype, upgrade, or praise the stock while they are trying. Often, they already have a position at lower prices or are kissing up to the company in hopes of doing debt or m&a deals in the future. 4) Analyst opinions can be interesting, especially if backed up by compelling analysis, but in general I view them as neutral to contrary indicators. Back when CATP was in it's heyday / hype period it was at around 60 and had near universal analyst support. I projected a major fall and backed up my thoughts with posts on Yahoo (johnnybdog) and here on Silicon Investor - take a look at the period from February 1998 to Today if you are interested (I made many posts). While CATP fell from 60 to 11, near universal buy recs from Wall Street went to near universal hold recs, but all the way down the street was reiterating it's buy recs - it was absurd but not uncommon. Take a look at the facts. Right now, USWB is an exciting story and gets a great premium in its valuation because it's still exciting. It gets alot of daytrader support and there are plenty of 25 year old programmers with more money than brains/experience willing to play the stock. As long as you understand this dynamic, you can play the stock effectively also. The things that people don't pay attention to with USWB is the history of companies which follow this consolidation strategy (see CATP and NETA). Almost always it ends in disaster for investors. One of the key problems is that growth by acquisition makes the accounting difficult to interpret and generally fast growth can hide alot of problems. During a fast growth period, this company could be selling lots of projects (i.e. renting out it's programmers) for breakeven or loss and it's very difficult to see it. It's only when the company matures or stabilizes that you see that the margins aren't that great (probably 10-15% at best). By all means enjoy the ride, but don't get caught thinking that they hype is grounded in reality. The reality is that a programmer that can be billed out for about $150,000 per year with even 20% margins brings in $30,000 in earnings. How much would you pay for a $30,000 stream of income ? Let's say you're not greedy and just want a 10% return on investment and you have $300,000 as your programmer worth. This analysis does not incorporate growth in the inventory of programmers, but you also have to realize that the acquisition strategy results in paying a hefty sum for the new companies (much higher than $300,000 per programmer) in shares. The only way to get to a higher valuation, in my mind, is by great organic growth - this is the figure to pay attention to. Right now the USWB market cap translates to around $1,000,000 per employee (and keep in mind some are admin and not billable). In the end there will be lots of money made and lost on USWB, but the people that will do best are employees and insiders that get options and employee stock and sell their shares to the public while it's still an exciting story. The ibank trading desks will make good money on trading volume. The ibank retail operations will make great commissions. And savvy traders that know it trades on hype will do well but at the cost of taking more risk than the rest. The sad part, though, is that the people that will lose are the one'e most vulnerable to the hype and can least afford to lose. The one'e that believe they are making a wise long term investment are just plain wrong in my book. Time will tell. Rick. P.S. If you know any analysts that have a strong buy on this stock, ask them how many shares they have tucked away in their IRA for the long term. One last thing: I do like Shaw. To this point he seems to be a strong and exemplary CEO. I like his background. I like his straightforward approach to business. If there wasn't a hype premium built into this stock, I might consider owning it for the long term because I do think he is the real thing. He may prove me wrong, and I think his capabilities make USWB less vulnerable to a CATP like disaster that can in great part be traced to a dishonest and less than straightforward CEO in Jim Sims.