eMailbag Monday: Comments On Check Point Software, Onsale, & More
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"Could you tell me what your opinion is about Check Point stock (CHKPF) and it's future? Check Point has been a firewall market leader for the longest time with stock price as high as 50 1/2. However, recently its stock has been in a slump for no apparent reason."
Reply: We believe that the security software market is long overdue for consolidation, and that mold grows on parts of the franchise. The leading firms such as Check Point Software (NASDAQ:CHKPF) and Security Dynamics (NASDAQ:SDTI) so far haven't led the charge here and Wall Street may simply be getting impatient for any of them to scale.
Meanwhile, competition, or the threat of competition, looms larger from IBM, Microsoft, Network Associates, and others. Check Point Software rules in firewalls but can it extend that power to the wider security opportunity? Somebody will. The rule on the Internet is "get big fast." And just when you think you've done so, get bigger.
On Or Off Sale?
Reply: Onsale runs Web-based auctions where bidders determine ultimate sale price, while Amazon sells books, music and video the fixed-price way. Part of the stock's drop may be due to the increased marketing of rivals and some of the novelty wearing off. Onsale competitors of note include Surplus Auction, a division of Egghead.com (NASDAQ:EGGS) and the privately-held eBay. We've always believed Onsale was a great idea and leader, pioneering the combination of computing power (bidding and processing bids) with the Internet (distribution and people). Room for expansion exists in auctioning, as does the ability for Onsale to just sell things, on sale.
"I've been looking for value investments with the word value defined as "about to rocket." From information I have on all Internet stocks that I know of, it appears to me that Open Market is a value:
- 300% revenue growth rate
- Ten top telecom corporations as clients
- Recently signed UPS as a client
- Projected to show sufficient net profit to have a 1999 P/E of 30
- Proprietary software/Internet commerce with three major patents
Do you have any information on Open Market?"
Reply: Open Market (NASDAQ:OMKT) seems to have more than survived in the commerce and information server software market while other large companies have not made dents. In particular, its early bet on the idea of e-commerce now begins to pay off. Some of Open Market's customers-clients include AT&T, Time Warner, Disney, CNET, and CitiBank. On June 4, Intel bought 330,000 restricted shares of OMKT stock and agreed to jointly market products based on Intel's platform. We think OMKT may be a good way for a larger software developer to buy into the e-commerce arena with a proven product.
Disney-Infoseek Team Up
"One input [on the Disney-Infoseek partnership]: Content delivery is the main driver in this deal. Disney was smart in realizing that its intellectual capital has a great new distribution channel (i.e., Infoseek).
To realize the $1.7 billion, however, this distribution channel will have to exploit Disney's content very well. People look at the Internet stocks such as Yahoo!, Excite, Lycos, etc. as amazing opportunities. However, I don't give them as much credit since they have no real proprietary content. They are basically a distribution channel that has no real barrier to entry in the long run and while the size of the pie may get bigger, the slices will become much thinner. Superior content will drive the real winner, just ask all the old publishing companies."
Reply: One thing overlooked in Disney's decision is the new portal the two announced they will co-create. Whether or not that effort flies or dies as a revenue and earnings effort may likely determine the value of Infoseek (NASDAQ:SEEK) shares more than what we think of as Infoseek today.
One notable downside to the deal: Infoseek has to buy $165 million in advertising on Disney's networks over the next five years, thus hurting its bottom line in an era when earnings are becoming central to judging a Web effort. Overall, however, we think that Infoseek needed a media partner to ramp up and, as media partners go, Disney ain't a bad one, unless it tries to run Infoseek as its own division. Evolution not revolution. Search for search sake becomes passe as 'meta Web sites,' or destinations, emerge. It's not about searching any more, it's about finding.