RealTime IT News

e-Mailbag Monday: Tracking Stocks, Cysive IPO, Yahoo!

This week, readers e-mailed Tom to get the skinny on tracking stocks, Cysive's IPO and speculation on the future of Yahoo!

Dear Tom

What exactly is a tracking stock and why do huge companies launch these stocks, what is the benefit to the shareholders?

Thanks and regards -- Dhaheer

Reply: As companies get bigger, it becomes more difficult for analysts and investors to determine valuations. Often times, a fast-growing business division will get crowded out by slower growing divisions. However, by separating these divisions, it becomes easier to place a value on the company. What's more, the employees' compensation will be tied to the entity that they work for -- not a very big entity.

There are two ways to separate companies: spin-offs and tracking stocks. In a spin-off, the division is completely separate from its parent. The division has its own management team and board of directors. As for a tracking stock, this is not the case. Rather, the parent company still has managerial control, but the division has its own ticker symbol and trades separately.

Example: Sprint created a tracking stock for its PCS Group in November 1998 at $15-15/16. The stock is now trading at 74-1/4. Thus, Sprint was able to unlock tremendous value for shareholders.

Cysive: Getting Decisive About Its IPO

What do you think of the Cysive IPO?

Reply: This week, the IPO market should be quiet, with no superstar IPOs planned (the Martha Stewart and WWF IPOs have been pushed back a week). There are 14 IPOs planned, with only five that are Net-based.

One of these is Cysive.

In a nutshell, the company develops customized architectures for large-scale eBusinesses. For example, the company built the Internetworking Product Center for Cisco Systems. In fact, it is the heart-and-sole of Cisco's e-commerce, which accounted for 60 percent of the company's revenues in fiscal 1999.

Other customers include Sylvan, UUNet, Technologies Equifax and so on.

Here are the valuation metrics:



pro forma IPO


Shares offered


Price target/actual




Shares out



IPO market cap


less working cap


plus LTD


Enterprise value


1999 Revenues


1999 Losses


Annualized rev.





Revenue multiple


Rev. multiple enterprise


All in all, Cysive should be a red-hot IPO.

Yahoo!-ing All the Way to the Bank

Hi Tom,

I would like to know if Yahoo! is a short now.

thanks -- Fran

Reply: In a word, no. There's an old rule on Wall Street: Companies that surprise analysts about earnings will likely continue to do so.

I think this applies to Yahoo! (YHOO) , which has become a Net blue chip stock. Last week, the company reported earnings that blew away analysts' spreadsheets. Pro forma net income surged to $40.4 million or 14 cents a shares, which compares to $6.9 million or 2 cents a share in the same period a year ago. What did analysts expect? 9 cents.

The company also exceeded expectations on revenues ($155 million), profit margins (34.6 percent), number of advertisers (3,150), unique visitors (105 million), page views (385 million average daily page views), and registered users (80 million). What's more, the company is transitioning its revenue base more towards e-commerce (30 percent of total sales currently).

With such metrics, this is definitely not a stock to short. It is a stock to buy and hold onto.

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