eMailbag Monday: Net.B@nk, Top Tier Tales, Ups & Downs
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First reader up this week poses this question:
"I am very intrigued by the potential of Atlanta Internet bank. Have not seen any write-up on this star yet. It is a new company, yet has consistently performed and is turning a profit during the next quarter. I think the growth potential for online banking is phenomenal, in sales and profit. What's your take on this stock? Could you please feature it sometime soon?"
Reply: Net.B@nk (NASDAQ:NTBK) said on May 21 that it signed up its 10,000th account holder at subsidiary Atlanta Internet Bank bringing deposits to $162 million, up 176% in 1998. Net.B@nk reported $151k loss or $0.02 per share loss for its first quarter on $2.2 million interest income. On May 14 it launched Internet brokerage services, a move that we think could boost its revenues and help diversify its story. We'll give it a few quarters and see.
The Long Of It
Reply: When ISDEX, The Internet Stock Index, was near 180 in late April we postulated a 15% to 20% correction in the high-flyers in the search and navigation group--many of which did just that in the following few weeks. Internet stocks are very diverse, and while some have yet to be recognized, others--flimsy and not in ISDEX--have risen largely on sheer hype that runs rampant among the uninformed. But it sounds like you've done your homework and know what you bought and why. We cannot tell you when to buy or sell, that decision is yours to make based on your interpretation of the market and your investment goals.
Crimson And Clover
"What a bloodbath it was for the top-tier Internet stocks. I'm losing my stomach for this game. Please explain this kind of volatility. How does a stock like SEEK run up from 10 to 45 then fall back to 23 with little news to motivate the movement other than steadily beating expectations. How does a whole group get hit across the board 5pts (YHOO, AMZN, LCOS, XCIT, CMGI) in one day and why? Please help us understand what are the forces that are now back lashing against what had been a superbly performing sector whose growth potential is seemingly unlimited. I'm scared to death of my Internet investments right now."
Reply: Primary rule in investing is know what you're in for. Many Internet stocks are very speculative with thin floats subject to extreme volatility given any interest in buying or selling. Yes, the industry is taking off, providing headlines and news reports about the very real effect it is having on the world.
But at this early juncture a lot of tossing and turning takes place as expectations and realities battle it out on Wall Street.
It is a roller coaster ride and not for the weak of stomach. Knowing when to buy and when to sell is always important. Too often buying is done on rumor or hype and not after real research and understanding.
The backlash to us looks like a much-needed pendulum swinging from rampant running of the bulls to perhaps a bull trot. We still believe in the top-tier firms, however, some of which you mention above. Those with strong management, proven business models and adept ability to execute always grab our attention. Which of them have posted earnings in the ISDEX? There's a clue as to how they operate and a look at things to come.
"Some maturity is developing with Yahoo! and Netscape starting some earnings flow so perhaps valuations will start being based on predictable earnings instead of dreams."
Reply: Netscape's (NASDAQ:NSCP) Web site alone, Netcenter, generated $31.1 million for the three months ending April 30, 1998. Portal rival Yahoo! (NASDAQ:YHOO) posted $30.2 million in its latest quarter. That looks like good news to us for Netscape. Although we're left wondering what would have been if Netscape had focused on its Web site as a destination-media asset from day one? It could have been number one in traffic and users by a long shot. As it is, the revenue is tops, that's something in our view.
Very astute article (ISR, May 28 about Gateway). Have you heard about Compaq's search button?
Reply: Yes, we've heard about various efforts by all the major PC makers to introduce more value added and branded services up front in an effort to strengthen (and leverage) their relationship with customers.
Bought & Sold
"I bought Infoseek (NASDAQ:SEEK) and USWeb (NASDAQ:USWB) at a very low price, then I sold them right after you indicated that the Internet stocks might give up 15%-20%. Now, everything is happening these days. SEEK and USWB have dropped more than 20% now. I decide to go in to own these two again. But you said that it is summer time, a slow time for high-tech stocks. So, I wonder what sector I shall buy?
Reply: Summer often is a slow time for tech stocks with little new product news or corporate fiscal budgets to prompt headlines. In the fall, back-to-school and holiday sales start to create the cash flow that boosts balance sheets and earnings reports. January often has a positive effect on stocks when new money flows into mutual funds. This creates the so-called "January Effect." We're watching for a year-end rally.