eMailbag: Readers Ask "What's Hot & Not In Net Stocks?"
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First reader up this week asks:
"I'd like to know what metrics are used to value Yahoo! and Excite (or search engines in general). It seems that Yahoo! trades at something like 50x sales while Excite is 10-20 times sales. Is this an 'arbitrage' opportunity or is there something else (besides Yahoo! being No. 1) that makes these valuations seem out of whack?"
Reply: "Out of whack" is in the eye of the beholder. Market leaders usually command a premium to their peers. We use several metrics to evaluate Internet firms including: market capitalization to sales, price to earnings (if any), market cap to users (which we invented), market cap to page views (which we also invented), market cap to ad views (which we also invented), discounted earnings modeling, market size and global potential, capital, access to capital, debt, management, historical performance, alliances, revenue streams, and maybe a few more.
What Are These Worth?
Reply: We don't give target prices for stocks but prefer to analyze the firm and let readers make up their own minds. In general we prefer to think of stocks as companies, not target share prices.
"When reviewing your ISDEX, I noticed that EGGS (Egghead.com) is the only stock without a research report (as listed on Yahoo!). Any comments/analysis on EGGS?"
Reply: See the February 5th edition of Internet Stock Report for our initial take on Egghead's move to be 100% Web-based. Overall we're optimistic that Egghead may do well on the Web.
"Why is E*TRADE on the ISDEX list while Ameritrade is not?"
Reply: ISDEX, Internet Stock Index, is a representative index of Internet stocks, not a comprehensive listing. However, Ameritrade (NASDAQ:AMTD) is on our ISDEX candidate list and may be added at a future date. We still watch it. More Trade
"How high up do you think E*TRADE's going to go in the short run? Is Infoseek a buy going into an earnings report? What three net stocks have the greatest upside in the short run? Can you and your staff walk on water? (Smile)"
Reply: We think that the bricks and mortar banks may start looking to the Net-based banks/investment firms for growth once the banking merger mania--on the analog side--subsides.
BankAmerica and NationsBank just announced a $60 billion merger. Citigroup was formed from Citicorp and Travellers. On Infoseek (NASDAQ:SEEK) we expect some strong revenue but aren't as confident on earnings yet.
Which three Net stocks have the greatest upside in the short run? As soon as we're walking on water we'll let you know. However, it may be interesting to check out our top picks to watch for 1998--see ISR March 27. And we'll be doing another "ones to watch" with perhaps some new stocks soon!