eMailbag Monday: Calling .Com, CyberCash, Spyglass, Wal Mart
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First reader up writes:
"I am baffled why Internet telephony companies such as VocalTec or NetSpeak have such suppressed stock prices. Deutsche telecom paid $21 for vocaltec and yet the stock is trading at around $11 a share. Motorola paid close to $30 a share for NetSpeak and not it is trading at around $10.
Given all the interest in Internet, when do you think the stock of the above two companies will start to rise?"
Reply: We also have been disappointed by both Vocaltec (NASDAQ:VOCLF) and NetSpeak (NASDAQ:NSPK) stocks and the underlying lack of widespread adoption of Internet telephony. One key difference. Our analysis estimates NSPK trades about 18x run-rate sales while VOCLF trades about 6x.
Risks? If Microsoft wants in and make the browser an IP telephony device. Or AOL's reborn Netscape does so. Any large Web site with an installed base can sell services. Web voice mail, voice messaging, paging, audio alerts.
Vocaltec and NetSpeak may want to concentrate on being the IP comm engines for the Web rather than selling applications and servers. Similar to how Inktomi (NASDAQ:INKT) provides wholesale search. Wholesale IP comm. Sell an annual service contract not a server.
"What is your opinion of CyberCash? This seems to be a company that is well portioned to take advantage of increased Internet commerce. Is the company worth holding some shares?"
Reply: Since its debut four years ago CyberCash (NASDAQ:CYCH) has always had this appeal to us as being straight out of a William Gibson novel. Only in late 1998 and now are we starting to believe there's something under the hood here other than science fiction.
CyberCash's merchant authorization and ICVERIFY look interesting. But we think the real action for e-tail may be in one-click payment, something CyberCash has started in its InstaBuy offering. If InstaBuy becomes widespread, such as on ShopperConnection's e-tail network, then CYCH could find some leg room. Or at least find some stretching room.
"After the excellent holiday season, what's in for e-tail stocks in 1999? Take for example Cyberian Outpost (COOL) that reported quarter results on Dec 22. Much higher revenues, a lesser loss than predicted by analysts, yet the stock gets punished (a fall of 33% since its quarter results report).
How well does this bode for other e-tail stocks? Most sales of e-tail companies are generated during the quarter of the holiday-(gift)-season, which was tremendous, but it's over. Sales for the next coming quarters are therefore expected to be lower and Wall Street expects every quarter to be better than the previous one. How do you expect e-tail companies/stocks will cope with this? Moreover, how will the whole Internet sector cope with this since some of these e-stocks are the leading stocks of the sector?"
Reply: There may be some initial retreat from e-tail stocks in Spring, the traditional slow season for consumer goods sales. But we also see that once final holiday sales figures are released that investors may balance the slow season backlash with the fact that 1 in 5 consumers in the U.S. bought Christmas gifts over the Web.
Move ahead to holiday season 1999 and we forecast over half of all gifts may be purchased over the Web. Wal-Mart (NYSE:WMT) market cap is $181 billion.
Our hypothesis goes like this: the two dozen e-tailers led by Amazon.com (NASDAQ:AMZN) have already eaten Wal-Mart's breakfast, can lunch and dinner be far off? The leader in PC software -- Microsoft -- has acquired dozens of Internet companies across the spectrum the past 36 months in order to stay competitive. Running to stand still in fact.
Meanwhile the leader in retail -- Wal Mart -- has just plain old stood still when it comes to the Web. Wal Mart needs to acquire Internet e-tailers by the handful if it wants to have half a chance here.
The thing Wal Mart doesn't see is that on the Web Microsoft, Yahoo, Excite, Lycos, Amazon, Go2Net (NASDAQ:GNET), Egghead.com (NASDAQ:EGGS), CDNow (NASDAQ:CDNW), Beyond.com (NASDAQ:BYND), and more are all its rivals--and more.
On the Web there's no lines between content and commerce. It's obvious that Wal Mart doesn't "get" the Internet. With its $100-billion-plus annual sales via stores it doesn't have to--yet. But it ought to snatch up the expertise soon, before the blue light specials are over.
"Is it my imagination, or is Spyglass being ignored by "the street". It would seem that 1999 will be the year of the "internet appliance" and SPYG has positioned itself right smack-dab in middle of it. I can't understand why this stock isn't garnering a lot more attention. Weird?"
Reply: We think "misunderstood" applies here and the fact that while Internet appliances are hailed as the next "big thing" that appliances haven't arrived in huge volume and neither have Spyglass' embedded browser sales to go with it. The PC still rules and that means Microsoft or Netscape browsers. Spyglass has demonstrated a core competency in embedded Internet navigation systems yet Main and Wall Street knows little about it.
"I love this report. I am a novice investor but for some reason Steve's report 'struck a chord' in my mind!"
Reply: We strike up the band and work hard to keep it in tune. Thank you for "tuning" in also.
It's coming this week in Internet Stock Report, Steve
Harmon's HotWatch '99, 10 stocks he thinks may set the new year off to a
sizzle and some that may fizzle. Look for it here this week!