Bulls & Cows: The Internet Stock Index Leads Market
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There's the bull market and then there's the running of the bulls. With a 25% gain in second quarter ISDEX could be slotted under stampede as Internet stocks leave every other major indices shown at the starting gate. Year to date ISDEX is up more than 58% on average or 82% if you count share prices only.There's more. Since December 31, 1996, ISDEX posted better than 250% gains. All right, last one. The top 10 stocks we said you ought to watch (see Internet Stock Report December 31, 1997) are up more than 150% since then.
Let's discuss the second quarter today and delve into the top 10 to watch tomorrow. Onward with the 2Q review:
100% All Beef? ISDEX 2Q98
|ISDEX ®||30-Jun-98||% change||Point change||% change|
|The Internet Stock Index||close||from||from||from|
|ISDEX Geometric Average||158.34||4.3%||6.52||58.5%|
|ISDEX Price Wtd. Composite||1,814.16||24.9%||362.17||82.1%|
|Security First Net Bank||SFNB||$14.94||73%||$6.31||106%|
|Versant Object Technologies||VSNT||$4.00||-46%||-$3.38||-71%|
Finding most favor on Wall Street's hot list was CNET (NASDAQ:CNWK), a latecomer to the world of portalmania but one nonetheless that lured NBC to invest in CNET's Snap! Web directory, a distant challenger for eyeballs in the search engine game. (Click here for our look at the NBC-CNET deal).
However, we said that when Snap! was launched its capital requirements would be greater in the long run than parent CNET itself, like having a gorilla riding a tricycle hoping it doesn't ask for a banana. NBC bought a third of the banana with rights to acquire a majority. CNET chief Halsey Minor was quick to mention Snap! was off its balance sheets when the ink was still drying.
CMG Info (NASDAQ:CMGI) represents a key Internet holding. Its more than 20 investments in an array of firms from Lycos (NASDAQ:LCOS) to GeoCities provides it with what we think could be off-balance sheet assets worth more than $2 billion. If so, that implies CMGI shares at $100. We'll see.
Amazon's run is getting to be as long as the river. This was a $2 billion market capitalization company just over a month ago. When we wrote our report on Amazon it was about $40 per share (split adjusted). At $5 billion market cap Amazon may have some more chapters to embellish upon.
It may have to move into the wider media-commerce space as Yahoo! and others have done to sustain that valuation. Yes, music and video are now on sale there. But hyper values requires hypermedia.
Infoseek just can't seem to get a break from investors. It inks a deal with Disney to sell a chunk of the search engine and gets Disney's Starwave, ESPN, Mr. ShowBiz, ABC.com and other efforts tossed in. We originally valued the deal to Infoseek at $420 million with a pro forma SEEK target of $1.7 billion market cap. The recent run in Sportsline (NASDAQ:SPLN), a rival to ESPN's SportsZone.com, however, makes us adjust the meter upward. SPLN market cap is $681 million (undiluted) and more than $1 billion diluted. Surely SportsZone valuation is comparable?
Said another way, if SEEK inherits ESPN SportsZone.com lock stock and barrel as promised, SEEK shareholders are getting it for FREE! In our view, SEEK plus SportsZone (at peer comparables) could be north of $2 billion market cap or a $70 stock. We'll give it 18 months and watch how Disney and friends mesh.
Second quarter hasn't been all running of the bulls though. A few fall under the category of plain old dogs. Security Dynamics (NASDAQ:SDTI), a company that once led Internet security and was the darling of Wall Street (circa 1996) now looks like it's all bark and little bite.
Internet telephone and communications software developer Vocaltec (NASDAQ:VOCLF) looked to be the 'next big thing' with the expectation that people would begin using the Internet for phone calls. And they are.
At these share levels we suspect Vocaltec could be prey for a telco or Lucent-type firm looking to acquire the company's installed base. If so, the server and client IP communications technology, which is robust, would be gravy on the deal.
For more of the pops and drops from the past quarter please see the
Archives, explore at will, and let us know what you think about the third
quarter. Where will ISDEX be in three months? Who will be on top? Email us with your guess now. More
bull run or mad cow disease in the making?