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RealTime IT News

eMailbag Monday: Go2Net, Insane Profits & Mutual Fund

First reader up this week writes: "Dear Steve: Go2Net: they turned a profit. They went to an all time high. Now they settled into a mid 30 to 40 level. Should I take the profit? Buy more for the long run? Do you think they have the potential to compete as a PORTAL?"

Reply: Go2Net (NASDAQ:GNET) has been on our radar for quite some time, especially after it acquired Silicon Investor, the largest financial discussion message site on the Web. November 23 Go2Net debuted a new front end that provides easier clicks to its content and services. Since we're burned out on the word "portal" let's use a more suitable word: "hub." Portal implies looking through to something else, hub implies sticking to the site and what it offers.

Semantics aside, we think Go2Net is drawing out its "hubness" and could find a niche that serves its audience. We don't think it's a Yahoo-like audience which is wider and more general.

But focus and integration are the two keys we see moving forward for sites like Go2Net, which we think has significant traffic, with September page views jumping 22% to 6.7 million page views per day vs. June. A page view represents a few things that are important: 1) users 2) ability to grow usage and 3) future revenue and earnings.

Good, Bad, & Then Ugly?

"I am long....i.e....long term re capital gains....AOL and YHOO. I also hold small positions in an IRA account in Excite, Concentric Networks, Visual Networks, CMGI and Checkpoint. I looked for what I thought were good companies with a real long term future. However, what is going on in the past two weeks has gotten me crazy for I feel that it will severely damage, good and bad, large and small Internet companies when the insanity stops. The craps table has moved to the trading screens, and it seems that only a few numbers are being bet on.

Now although I am up somewhere in the area of 800% and I say somewhere because at any given second the numbers change, in AOL and YHOO I have the dilemma of whether to take profits and possibly say goodbye to two wonderful companies. I know that the traders who have driven up the price of EBAY, AMZN etc have probably never read your column, but do you think these 25+ moves are going to kill the good with the bad when it is finally over?"

Reply: Buying and selling shares is up to you, we don't get into that game at all, preferring to voice our opinion with the investment analysis and let you decide. Our thoughts on the frenzy: investors can try and be speculators but it's very risky, not knowing which way the whims of the crowd will go.

As for AOL (NYSE:AOL) and Yahoo (NASDAQ:YHOO), both continue to impress the Street with growth, revenue and earnings.

We believe a consolidation phase is taking place in the Internet on the scale as never before seen, with AOL's buy of Netscape (NASDAQ:NSCP) an example of the mega-mergers we expect in this space very soon. The past four years have brought patterns of success to the Internet and it all relies on traffic and usage.

With traffic, a Internet company can basically do anything it wants, any sort of business, service, offering. In the digital realm (I call it zero gravity), the opportunities are almost limitless. Think about the notion that people ascribe to Microsoft (NASDAQ:MSFT) - "embrace and extend." Well, with the Internet I have a new one for you, it's "extend and embrace."

As for the 25-point moves for some Internet stocks, each has to be evaluated case by case.

For example, we believe Onsale (NASDAQ:ONSL) may have had some room to run while eBay (NASDAQ:EBAY), no matter what anybody says with their so-called "buy" recommendations, we doubt is worth anything near the $10-plus billion value it has (fully-diluted shares).

Want a comparable? Look at Excite's (NASDAQ:XCIT) Classified 2000. Nobody gives a hoot about them if the value of XCIT shares is an indicator.

XCIT trades at one-third eBay market capitalization and we believe Excite has a much better overall leverage-ability than eBay. To us, Excite is a full-service Internet media-commerce powerhouse vs. eBay's beanie-baby antique parade. Excite's user base alone holds tremendous potential.

As far as the recent run in Internet stocks goes, for the past 4 1/2 years I've believed the Internet changes everything.

Does that mean a stock such as CDnow (NASDAQ:CDNW) or Egghead (NASDAQ:EGGS) should double in one day? Probably not. But if those stocks have been ignored for 60, 90 or 120 days then a one or two-day burst may make sense as these stocks catch up to the sector valuations.

That said, speculating on these stocks may turn ugly if stock buyers simply follow the herd no matter where that ends up. The metrics that matter: management team, traffic, users, sales growth quarter on quarter and year on year, gross margins, employee count, alliances, partners, competitive landscape.

Mutually Speaking

"Please advise me what mutual fund company offer the fund that contain your companies in the ISDEX or anything close to this index."

Reply: We haven't found anything that's close to ISDEX and ISDEX is not a mutual fund (yet). All the funds that call themselves "Internet" have PC stocks in them so we cannot endorse any of them. Click and vote here if you'd like to see ISDEX made into a mutual fund. We'd like to see Fidelity, Schwab or Vanguard pick it up.


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