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Up 29% In Two Weeks: ISDEX Finds Legs Again On Wall Street

A touch of irony in the slew of Internet IPOs that have withdrawn lately even as ISDEX, The Internet Stock Index, soared nearly 30% since October 13 with 49 of the 50 stocks headed up, while the broad market also showed signs of bullishness. The reason? We believe that eBay (NASDAQ:EBAY) raised the bar on IPOs which can be boiled down to this: e-commerce is king.

Some IPOs may make it through the narrow window, but they have to have a e-commerce angle up front. That means a path to bottom line must be clear and the notion that "hope floats" only plays in Hollywood. Recent blockbuster, EBAY shares led ISDEX with 181% rise in two weeks. Also fueling the ISDEX run, earnings season, with better-than-expected results popping up.

ISDEX ®   27-Oct-98 % change Point change % change
The Internet Stock Index   close from from from
www.isdex.com     13-Oct-98 13-Oct-98 31-Dec-97
          or from IPO*
ISDEX Average   160.78 28.9% 36.05 61.0%
NASDAQ   1,717.63 13.7% 206.80 9.4%
DJIA   8,366.04 7.9% 615.34 5.8%
           
eBay* EBAY $82.50 181% $53.13 358%
GeoCities* GCTY $32.88 80% $14.56 93%
USWeb USWB $14.75 69% $6.00 57%
Sportsline USA SPLN $15.38 68% $6.25 43%
Network Solutions NSOL $49.63 61% $18.88 278%
Infoseek SEEK $31.31 59% $11.56 191%
24/7 Media* TFSM $10.00 57% $3.63 -29%
CKS Group CKSG $19.00 52% $6.50 35%
Axent AXNT $23.38 51% $7.94 36%
Onsale ONSL $20.00 48% $6.50 11%
CheckPoint Software CHKPF $23.25 47% $7.44 -43%
Mindspring MSPG $39.88 46% $12.63 256%
Doubleclick DCLK $25.13 46% $7.94 48%
Egghead.com EGGS $7.13 39% $2.00 10%
Lycos LCOS $38.13 39% $10.63 84%
Security First Technologies SONE $17.25 38% $4.75 138%
E*TRADE EGRP $17.88 38% $4.88 -22%
Netscape NSCP $23.81 34% $6.06 -2%
Broadvision BVSN $16.69 34% $4.19 157%
CMG Info CMGI $55.00 33% $13.50 264%
America Online AOL $122.00 32% $29.75 170%
ISS Group* ISSX $26.94 28% $5.94 22%
IDT Corp IDTC $16.63 28% $3.63 -18%
Amazon.Com AMZN $116.31 27% $24.94 286%
Network Associates NETA $39.06 25% $7.81 -26%
PSINet PSIX $14.69 25% $2.94 187%
Concentric CNCX $24.50 25% $4.88 176%
Security Dynamics SDTI $10.13 22% $1.84 -72%
Broadcast.com* BCST $45.13 22% $8.13 151%
Spyglass SPYG $13.00 22% $2.31 163%
CNET CNWK $42.00 20% $7.06 178%
Cisco CSCO $60.75 20% $10.06 63%
Open Market OMKT $6.13 17% $0.88 -36%
CyberCash CYCH $8.25 16% $1.13 -35%
Excite XCIT $37.75 15% $4.81 152%
Broadcom* BRCM $77.75 14% $9.81 224%
Yahoo! YHOO $123.75 13% $13.81 257%
Exodus* EXDS $26.25 12% $2.88 75%
@Home Network ATHM $46.13 11% $4.63 84%
Open Text OTEXF $12.38 10% $1.13 -7%
RealNetworks RNWK $36.69 10% $3.31 164%
Earthlink Network ELNK $39.00 8% $2.75 203%
CDnow CDNW $8.19 7% $0.50 -49%
VocalTec VOCLF $6.88 6% $0.38 -66%
Verisign* VRSN $30.00 6% $1.63 114%
Mecklermedia MECK $28.06 5% $1.44 13%
Inktomi* INKT $83.19 5% $3.94 362%
N2K NTKI $5.69 5% $0.25 -61%
Verio* VRIO $18.06 3% $0.56 -21%
Beyond.com BYND $7.25 0% $0.00 -19%
* change from IPO 1998          
TOTAL   1,688.19 28% 372.03 84%
SIMPLE AVERAGE   34.45 28% 7.59 84%

Said another way, those Web firms that center around buying and selling of goods in "zero gravity" (without getting into the shipping business or land-based warehousing bottleneck), represent a truly Web-innovated solution to commerce. Result: phenomenal net income margins if that model can sustain critical mass.

The solely brand-dependent, let's plaster an icon on your pet's collar, T-shirt waving, TV-ad buying, let's create a Web brand and see what happens, Internet notions are dead. Anecdotal evidence comes via theglobe.com, an IPO that decided not to go.

Sometimes a cool logo design is a design and does not a business make. More than ever it's the business model that matters. Buying and selling (AKA "business"). Advertising is still the number one revenue generator for the Web but retail and auctions, direct marketing and sales will soon dwarf ads as the primary revenue stream (and earnings), if they already haven't as you read this.

For those sites with business models in flux (which are about 85% of ALL Web businesses) the move to e-commerce-enabled functionality is as close as matching users with truly great values, time savers, pairing content with related goods and services.

That's the promise of something like GeoCities (NASDAQ:GCTY), which gathers more people under one site than just about anyone. Now it must turn on the e-commerce juice, which we believe it may do soon.

Among the moves and news:

  • 98.10.27 - eBay reports third-quarter net income (before charges) of $2 million or $0.05 EPS, beating the Street's $0.03 expectations. After charges eBay posts $663k, up from $199k 3Q97. Now the challenge is controlling costs as marketing scales up. Rival auctioneer Onsale (NASDAQ:ONSL) had a similar net income trajectory before investing in growth kicked in.

  • 98.10.27 - AOL (NYSE:AOL) reports its first fiscal 1999 results with a 65% jump in revenue to $858 million and $108 million net income (with tax credits), or $0.39 EPS, beating the Street handily. Subs grow about 1 million to 13.5 million and AOL announces a 2-for-1 stock split, its fifth since IPO in 1992. Related news, AOL's new buy, ICQ, has signed up more than 20 million users, 7 million more since AOL acquired it in June. Untapped user relationships. It adds 65,000 more per day. As we've said before, AOL looks the closest to being the "Microsoft" of the Internet in every way.

  • 98.10.27 - Network Solutions (NASDAQ:NSOL) posts third quarter revenue of $25.4 million, up 109% vs. 3Q98. Net income climbs 144% to 3 million or $0.18 EPS. That's the benefit of inheriting a monopoly on domain registrations: grow your business as the default .com registrar.

  • 98.10.16 - Amazon.com (NASDAQ:AMZN) is sued by Wal-Mart for allegedly hiring some of its former employees to try and duplicate the retail giant's powerful information systems network that ties customers and commerce with supplies, orders and preferences. Wal-Mart's fear is that Amazon will try and match Amazon's acquisition of shopping engine Junglee with a commerce network that mimics Wal-Mart's proprietary system, citing trade secret infringement.

    If that happened then Amazon would be closer to becoming the "Wal Mart" of the Web in many ways. We think this could be Amazon's most awesome challenge yet. In our opinion, building a data-inventory-supply chain-warehousing-shipping network is absolutely critical to it becoming a huge retailer.

    Without an ordering system that can effortlessly move merchandise of all stripes from manufacturer, distributor to buyer, then there's always just books. Wal Mart may be just venting sour grapes. The lawyer fees and legal entanglement, however, are exactly what any Internet firm doesn't need--distractions from hyper growth.



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