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eMailbag: ebay, Exodus, GeoCities & More

First reader up this week writes: "Steve, what do you think of ebay's prospects now that Yahoo/Onsale have launched a site free of any costs to post auctions?"

Reply: Bottom line: I think it may cost ebay some sizzle on its planned IPO. And if it's free from Yahoo/Onsale, then ebay's revenue could suffer if people use the Yahoo/Onsale offering. But ebay has a huge head start and just because Yahoo flips a switch doesn't mean it will be a success.

It takes talent and execution to make it go and grow. Remember Yahoo-MCI? Think of everything on a large traffic site as a freeway: certain roads get more traffic than others while side streets may be dusty and deserted. It's not always possible to take traffic and divert it to where the traffic cops want it to go, no more than trying to tame a river.

People decide where to go and what to do. Everything's one click away from a rival's effort or a better one. If Yahoo/Onsale does a better job then that's a long-term threat. But ebay could probably be acquired by somebody else eventually.

Many one-to-one auctions can exist, same as many long-distance phone companies or colas or movie houses--the appetite for them is bigger than any one entity.

Patent Business

"Steve, I'm interested in your opinion regarding the ability to patent point of sale transactions on the Internet. The specific company I have in mind is e-data (otc:gift)."

Reply: I don't know the particulars of that patent application. But generally speaking, litigation to enforce patents can be quite expensive and a full-time effort that detracts the company's management from operations, unless they are in the patent litigation business.

Some firms do nothing but dream up processes and patent them in the hopes that infringement comes some day. If the license fee is not that expensive then many large firms routinely pay it rather than waste their lawyers' time pushing papers back and forth. A court would best decide on any specific patent ability of your question. And then the best lawyer may win.

Parting The Red Sea?

"I hope you may be able to shed some light on the following: do you have any info about EXDS (Exodus Communications)? Their stock has tanked, yet it seems as if they keep growing and signing up more major accounts. A recent Boardwatch Magazine (a Mecklermedia publication) article showed them to be rated #2 of all the major ISPs."

Reply: Internet.com's IPO Index showed Exodus (NASDAQ:EXDS) up just 13% from its IPO this year. Part of the concern may be EXDS' June 26, 1998 agreement to sell $200 million of 11<% Senior Notes due 2008 in a private offering. For its latest quarter (June) EXDS posted $14 million loss on $10 million revenue.

Boardwatch/Keynote Systems performance and ranking of ISPs showed Exodus #2 in only one category, 1.544 Mbps T-1 Average Monthly Cost ($1,199). But on other performance measures--most important speed--Exodus ranked lower than average or lower than the top 10. See BoardWatch for more ISP news.

Gee Oh

"What's happening with GeoCities? It was soaring at over 50 per share when the IPO came out, and now it's 21 per share. I know that stocks typically will go down after the IPO, but do you think the GeoCities stock will continue to sink into a black hole? Or will it start to slowly (or quickly) go into some better values?"

Reply: Typically many IPOs trade at or below their IPO price or first day euphoria after going out. It may happen one day, week, year or whenever after going public. With the market focused on bearishness it's no surprise that GeoCities (NASDAQ:GCTY) has been volatile both ways.

GCTY could rise again if it translates its traffic into revenue/earnings, or if it consolidates its position to fend off a frontal attack from Lycos (NASDAQ:LCOS) which has snapped up community sites, and if it can diversify its revenue from just advertising, which GeoCities shows signs of doing.

Being a top 10 Web site and public (i.e. with stock) certainly helps GeoCities since it can use stock to acquire other sites and services. With acquisition also comes more top management that can help the firm grow, etc. We'll see where and what GeoCities as a firm does the next six months.

Bumps And Jumps

"Steve, why the big, sudden move in the Net stocks today? It seemed to coincide with the drop in the Dow during Greenspan's speech. Program buying? rotation? Any way we could have seen it coming?"

Reply: At times Internet stocks rise while blue chips fall and this may simply be a debate by the big funds on where to park their cash: tried and true blue (and little growth) or wild and just blue (lots of potential growth).

Programs and computer-based buying may account for some of it.


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