HotWatch For The Past 12 Months:The 10 End 1998 Up 312%
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The motley crew of 10 stocks we selected to keep a closer eye on in 1998 were up 312 percent through Dec. 30 as a group. Network Solutions (NASDAQ: NSOL)led the gains with 800 percent. Sportsline (NASDAQ:SPLN) brought up the rear with a 53 percent rise year to date. The play-by-play and why these 10 were selected for a close look this past year:
Let's set the stage first. In January of 1998 NSOL's fortunes weren't looking good to the uninitiated: pending expiration on the exclusive ability for Network Solutions to provide ".com," ".net" domains was ending Spring last year and many thought that an onslaught of rivals would commoditizes the domain registration business was imminent.
How 1998's 10 to watch ended the year through December 30:
How 1998 Hot Watch Did:
Another factor in NSOL's favor: cost of switching. If you already have a domain registered with Network Solutions how likely are you to switch if the cost is competitive?
AOL (NYSE:AOL) was 1998's second-best in this group with a 552 percent gain. Our thoughts 12 months ago were that AOL was the world's largest aggregator of eyeballs & wallets. With the pending acquisition of Netscape (NASDAQ:NSCP), that statement proved to be more prophetic than even we had dreamed.
AOL began realizing its advertising and marketing opportunities in mid-1998 with the $100 million Tel-Save deal, where the upstart long-distance provider paid AOL $100 million to market telephone services to AOL's then-10 million subscriber base. Other multi-million marketing deals followed in books, music, even food.
Infoseek (NASDAQ:SEEK), the runt of the search engine litter on Wall Street ever since its IPO in 1996, had a few things we thought was attractive: strong search technology and traded at a relative discount to its peers way back in the days of January 1998. Since then Disney latched onto to SEEK with a big 43 percent stake and some mighty mouseketeering to come.
When Earthlink (NASDAQ:ELNK) founder Sky Dayton sat down with me in 1997 for a face to face meeting, I asked him what Earthlink's best asset was. Quite honestly I was having a hard time seeing how ELNK could be valued since it doesn't own its network or have a gazillion POPs all over the world like PSINet does.
Sky said "customer service." He mentioned that the largest part of the Earthlink work force was involved in customer service--at the time more than 600 people. He mentioned the experienced managers he and the board brought in to grow the business and how capacity was beyond current subs.
Against that backdrop consider that at the time AOL was having huge problems with busy signals, attorney generals were threatening lawsuits against AOL.
We were convinced that customer service was the heart of a technical enterprise that sells to consumers. If Earthlink fulfilled the promise it had a chance to do well. Sprint bought 20 percent a few months into 1998 and suddenly consumer ISPs were getting noticed. Why did Sprint buy? It's in the network business, not the "how do I configure my browser or dial up my ISP and what's a home page?" business. That's Earthlink's specialty, so for the year that's ending ELNK made the list. ELNK was up 363 percent in 1998.
Concentric (NASDAQ:CNCX) operated at the other side of what I felt may be an attractive part of the ISP offering: VPNs. These "virtual private networks" allow corporations to save money by using the low-cost infrastructure of the public Internet for secure corporate networking. Anytime you save corporations money it seems like a compelling business.
As 1998 dawned it wasn't clear that cable modems or cable and Internet would really come together at all. But having analyzed the cable business in a previous life, I knew the cable guys were hungry for value-added services.
And the cable guys understand what it is to be an entrepreneur. That's no small thing in a world where your local telephone company takes you for granted and considers your phone bill a "right" or monthly dividend.
The cable guys looking at the Internet were the same ones who 30 years ago climbed up poles and trees and strung their own cable systems themselves. Glenn Jones of Jones Cable lived in his car and was a one-man cable firm when he began. These guys and gals are entrepreneurs. You'd never see the head of any telco doing that. It's bureaucracy vs. vision.
The biggest drawback of the Net was (and is) speed, lack of it. Snail pace. Graphics routinely cause constipation. Cable modems looked like they may speed up the process. @Home had TCI and Kleiner Perkins behind it, the NASA Internet guru at the control center (Milo Medin) and an open road ahead with its alliances with other cable operators. So far in 1998 I think sign ups are slower than I would have guessed 12 months ago. ATHM still ended the year with 185 percent upside.
The idea of having a company come and provide a turnkey Web presence for corporations led me to include in 1998 USWeb as one to watch--and we watched. The thinking was that not every company wants to hire a geek brigade to run an Internet department. Outsource the entire thing.
While USWeb didn't explode as we expected, as a nationwide phenomenon it did well. By year end it had absorbed marketer CKS.
With its streaming software dominance in 1997 we selected RealNetworks (NASDAQ:RNWK) for last year as one to watch. By default Real had at least 4 or 5 businesses under its nose, similar to what Netscape enjoyed early on. The client pointed to the Web site which pointed to the client. Millions of users of RealAudio looked compelling.
ONSALE (NASDAQ:ONSL) was the only public Internet auction house in late 1997, certainly the best known by far. The model of using the Web's distribution to link buyers in real-time was pioneering and led us to make ONSL a 1998 stock we'd keep our eyes on. Of course since then rivals have come in and added pressure, eBay (NASDAQ:EBAY) in the classifieds as auction space, Egghead (NASDAQ:EGGS), which abandoned its gravity-bound store chain for the Web, and more recently uBID (NASDAQ:UBID), 20 percent spun off in an IPO from Creative Computers (NASDAQ:IMALL).
Sports aggregator Sportsline (NASDAQ:SPLN) began 1998 with some notable attractions in our view: the Winter Olympics were coming and this would likely boost CBS Sportsline's Web users.
But it also had focused on one of three "killer ap" content categories on the Internet--sports. Besides financial and computer info, there's sports. The thinking was that the TV exposure and male-centric Web user (especially in early 1998) may be drawn to sports sites. We thought Sportsline would be more well-known and bigger today than it is. But a 53 percent rise still beats the Dow and NASDAQ by a long shot.
What about 1999? For 1999 Steve Harmon's Hot Stock Watch may be available as a monthly e-newsletter for a subscription fee, with updates on the group coming monthly and even the stocks possibly changing of who's in or out of the spotlight in the fast-paced Internet. Interested in hearing more? We'll tell you all about it right here. Keep watching this space!