eMailbag: Broadcast.com, DoubleClick, ebay & More
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First reader up this week writes: "I would like your opinion on various search engines (YHOO, LCOS and XCIT) and AMZN. Seems like the momentum play has started in these, and these stocks may be up for a huge jump pretty soon. Do you have list of stocks you recommend in Internet space. Where can I access it?"
Reply: Here's a quick take: Yahoo (NASDAQ:YHOO), the clear leader in users and page views. Looks like the premium for that may be present in YHOO shares already. Challenge is turning the traffic into revenue, harder done than said, and keeping enough bodies at the controls to make the Yahoo experience truly great. So far so good.
Lycos (NASDAQ:LCOS), bought its way to number one in community, a nice complement to search and guide. Challenge is finding a business model and the people to turn community into more than just "commune" which connotes people drifting in and out of its service without the cash register ever going "ka-ching."
Community provider Xoom (which has filed for IPO) seems to have a better model, direct marketing and sales, and its users know they're part of a buying community. The problem for others offering freebies without ever setting up the provider-user relationship to include commerce is that those users balk at any product pitches sent to them or the placing of ads on their site, since that wasn't part of the equation on day one.
Amazon.com (NASDAQ:AMZN) has a lot of good momentum in selling books. Whether that means it can also sell music and videos is another story. Internet Stock Report surveyed our readers a few months ago and many of them associated Amazon with ecommerce. That could bode well for Amazon or it could mean there's simply not much in the way of ecommerce to get excited about at the moment.
On December 31, 1997 we selected the "top 10 stocks to watch" for this year. Check the Archives for Morning Report, do a search on company name and other keywords.
Third Rock From The Sun
"I bought DCLK, CDNW, GCTY, CNWK some time back and all have major losses since I bought; time to take the losses or hang on to them through thin times?"
Reply: As far as your picks and pans we can't give individualized advice. Overall, keep in mind that Internet stocks are extremely volatile and can swing up and down in a very short time. Also, never invest more than you're prepared to lose. High reward and high risk go hand in hand. DoubleClick (NASDAQ:DCLK) is the leader in ad delivery networks on the Web if that's any consolation; CDnow (NASDAQ:CDNW) has marketing deals with major portals that could benefit it; GeoCities (NASDAQ:GCTY) is flush with cash from its IPO to spend on hiring talent and growing its service; CNET (NASDAQ:CNWK) does a great job of covering general purpose technology with its News Web sites.
"Dear Steve, I'm (as a German) very interested in investing in American Internet shares and receive the ISR news letter every day. Now, I got some questions: Do you know VGTI, do you have some comments/analysis?"
Reply:Virtual Gaming (OTCBB:VGTI) trades on the small board with a market cap just over $30 million. The San Diego, CA-based firm conducts gambling over the Internet, aimed mainly at non-U.S. residents. We think gambling on the Net is a tough area because of international laws, or lack of them, regarding it.
"Steve, granted BCST is the premier broadcaster and their traffic has had to be outrageous over the past week. But do you really think that a +20 point move (9/23/98 10:00 am) in the past 3 days is fundamentally sound? There have been no big (block) buyers, and shares trade here at roughly 3x the original pre-I-net stock IPO craze price ($18).
If the company has subs on the level of a CNET (roughly the same mkt. cap. before this move), TTM Revs/Sub of $1.32 (well below the industry average of $5.00) is static, while Mkt Cap/Rev just tanked from an already lofty 53.9x to a ridiculous 84.0x (industry avg a scary 20x) on NO FUNDAMENTAL SHIFT(!), where does this thing go from here? Do we go short, or just say, oh it's just another Internet stock, and what goes up must only go up. Thanks for letting me vent."
Reply: Broadcast.com (NASDAQ:BCST) benefits from first mover status, it opened up the video-audio network on the Internet concept into a business proposition. It cannot be compared to CNET, different animals. Lack of stocks in the video-audio space also helped fuel BCST, unlike the search and guide space which is over-crowded.
Thanks to Clinton's video being released on the Web, Wall Street tuned in and that helped Broadcast.com and RealNetworks (NASDAQ:RNWK) which sent the signal investors wanted to see and hear.
What goes up doesn't always go up, however. It depends on Broadcast.com's moves the next 12 months as to if the bump was justified. The quality of Internet video lacks the clarity of TV, which remains the benchmark for video in a generation used to seeing people and places in crisp color and sound. In that sense, we believe Broadcast.com is a great "concept" at this point.
Right Here, Right Now
"I view the ISDEX everyday, but wonder why Beyond.com (formerly software.net) is not included? It's up almost 13% today (as of 2:30 EST) on a volume of 425,000. They are one of the oldest (if not THE oldest) Internet store on the Net (since 1994). Why are they not on the ISDEX?"
Reply: We review ISDEX every quarter and add or delete stocks based on the representative nature of the investment in the Internet industry sectors: software, commerce, content, hardware, and communications. Being included in ISDEX is not easy since it is the leading index of Internet stocks. That said, Beyond.com has been on the possible add list for ISDEX.
Steve, a query about eBay's IPO today: What level of correlation do you expect to see between eBay's stock activity and other auction players such as ONSALE or Egghead with its Surplus Auction? If eBay is a highly successful IPO, as many expect it to be, how much will this impact other players in the auction category? Will this draw more investor attention to this business model on the Internet?"
Reply: ebay's (NASDAQ:EBAY) "personal auction" model differs from Onsale (NASDAQ:ONSL) and Egghead (NASDAQ:EGGS). ebay lets people auction to each other while the other firms auction items mainly from manufacturers. ebay's model tends to aggregate more people into the buying and selling process. Onsale announced a deal with Yahoo to emulate ebay's approach and try it with Yahoo. Is EBAY a $1.7 billion market capitalization enterprise while ONSL sits at $343 million? Doubtful. Give EBAY six months and we'll tally the market caps again and perhaps see a closer match or the gap close one way or another on these two stocks being "auctioned" on Wall Street.
Internet Investment Symposium '98, Oct 8-9 @ F all Internet World!
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