RealTime IT News

eMailbag Monday: Phantom Internet Stocks? E-tail, & More

First reader up writes:

"Steve: How about phantom Internet stocks? Barron's thought Fed Express could be a winner from all this e-commerce. What about companies that make e-commerce software? Like Open Market or Broadvision. Didn't Intel just buy a privately held company that makes e-commerce software iCat. What's the future for these company types?"

Reply: For e-tail, the overnight shippers are effectively the shipping departments of those companies. Outsourced shipping. Another reason why e-tail is in the "zero gravity" space (a term I coined to describe e-commerce efficiencies, better margins, global markets and instantaneous, endless assortment of goods and services). So all the shippers could be winners.

As for Broadvision (NASDAQ:BVSN) and Open Market (NASDAQ:OMKT), both firms seem to have what we think could be 1999's mantra for all businesses: e-commerce, which, despite the headlines, has a long way to go in every area. Most forecasters get excited about projecting $350 billion in ecommerce in a few years. The flaw there though is that these are linear projections and do not factor organic systems.

At its core the truly successful ventures on the Internet are all organic, as a cell splits and multiplies from one to two, four, eight, sixteen...so we think the correct way to do an ecommerce forecast--and we've done these many times--is to look at it like this: we think ecommerce could be at least $350 billion but probably much larger than that if the biologic nature of growth of the Internet commerce continues.

Further, if you consider that perhaps as many as 95% of ALL businesses in the U.S. are not on the Internet then you begin to see fertile fields for all kinds of brand new ways to get them on and in the Internet. Is it bright enough in here yet?


"Your opinion on TFSM would be appreciated, I had originally bought at $17. Took profit on day after Thanksgiving, but still have 700 do you think this is the number #2 advertiser on the Internet?"

Reply: According to Media Metrix, 24/7 Media networks reached 44.1% of all Internet users and had 26.7 million unique users in September 1998. In June, rival DoubleClick (NASDAQ:DCLK) reported a 29.4% reach over 170 sites in its network. While the months are not the same this suggests that 24/7 could be #1, unless DoubleClick grew its reach 15% since June which seems unlikely.

We have a belief that owning the #1 and #2 in any Internet category may probably be a pretty good spot to be in. If you've covered your costs basis in TFSM then it's really up to you to decide if you like owning a #1 or #2 in the Internet ad arena, what your return expectations are and over what period.

Defining Moment

"Could you clarify for me what is meant by WEBDEX? I am a new subscriber to ISR and am trying to catch up. Is this assuming a new methodology for valuing these companies that is tied to users. Is users synonymous with hits or more discerning? Thank you very much for your help and keep up the great work."

Reply: WEBDEX is a term that describes a metric I invented in early 1996 for valuing Internet companies by dividing market cap by number of unique monthly users (provided by Media Metrix). That way of valuing an Internet company has since been picked up and is now widely used on Wall Street.

Hang Gliding On Wall Street

"Dear Steve, i am a hanglider pilot and so don't mind living dangerously. I am just about to take my first ever steps to invest in the stock market and after seeing on the news what has happened a few times when new Internet stocks hit the market, i am thinking about investing all i have which totals around twenty five thousand dollars in this area.

As I said I don't mind living dangerously but would obviously prefer not to make a complete mess of my first stock investment. I don't want to gamble on safer blue chip stocks as i feel this is ok for people with plenty to invest who stand to make a lot even if something goes up only 10 percent. I want to use my small amount in an attempt to make a large win in spite of the risks.

I know you cant see into the future but you seem excellent in your predictions with regards to Internet stocks and I would greatly value your opinion about infospace.com. Do you foresee an increase in the stock value as happened with XOOM.com or do you feel the gains will be considerably more modest. Do you foresee a chance that there might be considerable losses?. Is this a share one should purchase and sell the same day? The stock was supposed to hit the market on the 11 Dec and now I hear it is delayed. Do you have any idea when it will open and do you see anything negative in the fact that it has been delayed. On CNBC television I get the feeling that the conventional investors are very irritated about the vast increases in Internet stocks and I hear rumors that they would like to ruin this area for green investors like myself so that the big players rule the market once more.

Do you think they can do this and if so do you think they might have something up their sleeve (perhaps connected with this delay) which will ruin the gains of infospace.com. Do you think that this year's Internet 'gold rush' with stocks like XOOM is a thing of the past or is this only the beginning of events like this? I would really appreciate your answering any of these questions and feel there may be many other completely green investors who are wondering the same as me - maybe this would be a good subject to discuss in one of your excellently written analysis."

Reply: Infospace.com is scheduled to go public this week. Watch the news for when and how much. I believe the better quality Internet IPOs could do well on opening but there has also been a handful now that have gone public and sapped up some of the demand.

In my universe of thinking from left to right along a continuum goes like this: content at the far left, valuable but not the most efficient way to convert users into revenue via ads. On the far right I see commerce, where every click can generate revenue that far exceeds the pennies paid for every banner ad that content relies on.

On that "webline" then I would place a content stock as attractive but an ecommerce or etail stock as more attractive. For example, well over half XOOM.com (NASDAQ:XMCM) revenue comes from selling stuff. And something like eBay (NASDAQ:EBAY) is a commerce machine if it can ever outgrow the stigma of being a beanie baby, furby frenzy, or when it's not booting off members critical of its lack of service or getting sued.

Forget E.F. Hutton, Peter Lynch or Warren Buffett...

"Steve Harmon is the guru of net stocks and the Internet. He is the ONLY Internet analysis I follow and I make most of my stock buys according to what he thinks. He has made me a whole lot of money. Go Steve, you are the man!"

Reply: Thanks for the compliment. Our commitment to you is nothing less than the best analysis, the best info, the best understanding of what the Internet is and could represent--as well as the best ways to use the medium itself to buy, sell and trade stocks and investment info from private to public firms.

When we started in 1994 we foresaw that the Internet would change business and consumer habits forever and since that time have analyzed all the firms in this space up and down, since before Amazon was Amazon and Yahoo was Yahoo. And you ain't seen nothing yet!

  • Tell us what you think was the biggest Internet industry moment of 1998, either personally for you or for the industry as a whole - results published here shortly. please click and tell us your pick.

  • Attention Internet Startups! LaunchPad West StartUp Pavilion, part of Spring Internet World '99, one of the world's largest Internet industry trade shows offers exhibit space for startups ONLY at a reduced price in order to meet their often limited capital available at the startup stage. Contact Sean Moriarty (hurry, space limited): mailto:moriarty@mecklermedia.com