Three months ago in the December
31, 1997 edition of Internet Stock Report, at a time when Wall Street
shunned Internet stocks, we picked 10 companies with the claim that they
may be the ones to watch for 1998.
As most investors toasted blue chips and fried small caps on that hallowed
eve, as many a portfolio manager sang auld lang syne to new fangled Net
startups, we simply suggested “Take a look at these 10 stocks.” On March 26
we checked up on the 10. Guess what? As a group they’re up 84% in three
Check the numbers:
The ISDEX Magnificent 10, So Far
Hot Stocks To Watch ’98
Ones We Said To Watch On 12/31/97: Did You?
Internet at high speed
World’s largest aggregator of eyeballs & wallets
Virtual networks & corporations
Customer service king
Discount to peer group
WorldNIC moves looks smart
The bidding has only just begun
All ears and now eyes, too
CBS Olympic reach
Turnkey Web services
© 1998 Mecklermedia. www.isdex.com
At the time we made these observations, the central point to much of this
was that we believed Internet stocks were severely undervalued, and that last
year’s hoo haa parade for the market left Net stocks flat. ISDEX started
and ended 1997 at about 100.
Meanwhile, the Dow and S&P, and even NASDAQ, had fairly good returns in
1997. With its sideways motion we saw that perhaps at least 25% upside
existed in the ISDEX itself (the entire group, not just the 10 shown here)
if investors valued small cap stocks at all. If there was indeed a party on
Wall Street the only ones not invited as of that champagne annual eve were
Internet stocks, and that they too may be invited to stretch their legs and
The same reasons noted just three months ago for why the 10 had potential
in our analysis is the same reason why we believe the 10 still could have
Most analysts said that Network Solutions (NASDAQ:NSOL) was dog meat in 1998
because its monopoly on registering domains was ending. While the monopoly
status is ending, we saw beyond that to the enviable position that NSOL
already has in our view–all those millions of .com domains already
registered on it for a period of two years.
As each comes up for renewal we believe that inertia will perhaps favor
Network Solutions. People may want to pay another $50 to keep the URL right
where it is rather than mess around with price comparison shopping for
other domain registrars.
We see the cost of switching to be more of a hassle than
anything else. Analogy: how many businesses with Yellow Page listings take
those listings elsewhere based on price? Not many we suspect.
Earthlink (NASDAQ:ELNK) had a phenomenal run which we fully expected. It
appears we were right when we said that customer service counted. Sprint
thought so and bought a chunk of ELNK at $45 a share and will feed it new
subscribers for the next several years. How did we come to that conclusion?
We talked with Earthlink founder Sky Dayton and realized the management
team at Earthlink was much stronger than Wall Street knew, that the sheer
there would make something happen. It did.
We think RealNetworks (NASDAQ:RNWK) may have as many as four or five
different businesses right under its belt if it can see them. We’re not
going to get into publicly saying where the opportunity lies.
ONSALE’s (NASDAQ:ONSL) model, in our view, may be the purest e-commerce
model yet: auctions. Someday maybe everything will be sold this way. Let
the market decide.
Everybody looks at Yahoo! (NASDAQ:YHOO) as the AOL killer. In the very first
Internet Stock Report on April 9, 1996 we said Yahoo! was what AOL wanted to
be when it grew up on the Web. Sure enough, two years later Yahoo! is the
number one Web service.
We think @Home (NASDAQ:ATHM) may be a late bloomer, that high-speed
Internet services are inevitable, that it could be on the 90 yard line with
10 yards to go–but those are the hardest 10 yards!
Trouble is, the cable firms have lousy reputations with
consumers. After being milked for every new channel for 25 years, consumers
are fed up with TCI, Time Warner, Cox, and Comcast.
So @Home’s got a job to do to overcome the bad seeds cable has sown for all
those years. Customer service is king. If they get that up front then watch
out. @Home may very well be the next generation Internet model, if it can
muster the Net talent beyond Milo.
And no, we’re not recommending any stocks here. See the
disclaimer. We’ll check back on this group again soon.