eMailbag:, DoubleClick, ebay & More

First reader up this week writes: “I would like your opinion on various
search engines (YHOO, LCOS and XCIT) and AMZN. Seems like the momentum play
has started in these, and these stocks may be up for a huge jump pretty
soon. Do you have list of stocks you recommend in Internet space. Where can
I access it?”

Reply: Here’s a quick take: Yahoo (NASDAQ:YHOO), the clear leader
in users and page views. Looks like the premium for that may be present in
YHOO shares already. Challenge is turning the traffic into revenue, harder
done than said, and keeping enough bodies at the controls to make the Yahoo
experience truly great. So far so good.

Lycos (NASDAQ:LCOS), bought its way to number one in community, a nice
complement to search and guide. Challenge is finding a business model and
the people to turn community into more than just “commune” which connotes
people drifting in and out of its service without the cash register ever
going “ka-ching.”

Community provider Xoom (which has filed for IPO)
seems to have a better model, direct marketing and sales, and its users
know they’re part of a buying community. The problem for others offering
freebies without ever setting up the provider-user relationship to include
commerce is that those users balk at any product pitches sent to them or
the placing of ads on their site, since that wasn’t part of the equation on
day one.

Excite (NASDAQ:XCIT) has made the most out of it appearing to be “number
two” to Yahoo. That was then, this is now–it’s actually number four on the
top 10, according to Relevant Knowledge., Microsoft and Lycos are
ahead in number of monthly users. Infoseek’s (NASDAQ:SEEK) deal with Disney
also makes it a threat to Excite and Lycos. Yahoo has the benefit of the
“teflon aura” for now, Lycos and Excite do not. (NASDAQ:AMZN)
has a lot of good momentum in selling books. Whether that means it can also
sell music and videos is another story. Internet Stock Report surveyed our
readers a few months ago and many of them associated Amazon with ecommerce.
That could bode well for Amazon or it could mean there’s simply not much in
the way of ecommerce to get excited about at the moment.

On December 31,
1997 we selected the “top 10 stocks to watch” for this year. Check the
Archives for Morning Report, do a search on company name and other

Third Rock From The Sun

“I bought DCLK,
CDNW, GCTY, CNWK some time back and all have major losses since I bought;
time to take the losses or hang on to them through thin times?”

Reply: As far as your picks and pans
we can’t give individualized advice. Overall, keep in mind that Internet
stocks are extremely volatile and can swing up and down in a very short
time. Also, never invest more than you’re prepared to lose. High reward and
high risk go hand in hand. DoubleClick (NASDAQ:DCLK) is the leader in ad
delivery networks on the Web if that’s any consolation; CDnow (NASDAQ:CDNW)
has marketing deals with major portals that could benefit it; GeoCities
(NASDAQ:GCTY) is flush with cash from its IPO to spend on hiring talent and
growing its service; CNET (NASDAQ:CNWK) does a great job of covering
general purpose technology with its News Web sites.

Achtung Baby

“Dear Steve, I’m (as a German) very interested in investing in American
Internet shares and receive the ISR news letter every day. Now, I got some
questions: Do you know VGTI, do you have some comments/analysis?”

Reply:Virtual Gaming (OTCBB:VGTI) trades on the small board with
a market cap just over $30 million. The San Diego, CA-based firm conducts
gambling over the Internet, aimed mainly at non-U.S. residents. We think
gambling on the Net is a tough area because of international laws, or lack
of them, regarding it.

Cast Away

“Steve, granted BCST is the premier broadcaster and their traffic has had
to be outrageous over the past week. But do you really think that a +20
point move (9/23/98 10:00 am) in the past 3 days is fundamentally sound?
There have been no big (block) buyers, and shares trade here at roughly 3x
the original pre-I-net stock IPO craze price ($18).

If the company has
subs on the level of a CNET (roughly the same mkt. cap. before this move),
TTM Revs/Sub of $1.32 (well below the industry average of
$5.00) is
static, while Mkt Cap/Rev just tanked from an already lofty 53.9x to a
ridiculous 84.0x (industry avg a scary 20x) on NO FUNDAMENTAL SHIFT(!),
where does this thing go from here? Do we go short, or just say, oh it’s
just another Internet stock, and what goes up must only go up. Thanks for
letting me vent.”

Reply: (NASDAQ:BCST) benefits from first mover
status, it opened up the video-audio network on the Internet concept into a
business proposition. It cannot be compared to CNET, different animals.
Lack of stocks in the video-audio space also helped fuel BCST, unlike the
search and guide space which is over-crowded.

Thanks to Clinton’s video
being released on the Web, Wall Street tuned in and that helped and RealNetworks (NASDAQ:RNWK) which sent the signal
investors wanted to see and hear.

What goes up doesn’t always go up,
however. It depends on’s moves the next 12 months as to if
the bump was justified. The quality of Internet video lacks the clarity of
TV, which remains the benchmark for video in a generation used to seeing
people and places in crisp color and sound. In that sense, we believe is a great “concept” at this point.

Right Here, Right Now

“I view the ISDEX everyday, but wonder why (formerly is not included? It’s up almost 13% today (as of 2:30 EST)
on a volume of 425,000. They are one of the oldest (if not THE oldest)
Internet store on the Net (since 1994). Why are they not on the ISDEX?”

Reply: We review ISDEX every quarter and add or delete stocks
based on the representative nature of the investment in the Internet
industry sectors: software, commerce, content, hardware, and
communications. Being included in ISDEX is not easy since it is the leading
index of Internet stocks. That said, has been on the possible
add list for ISDEX.

Bay View

Steve, a query about
eBay’s IPO today: What level of correlation do you expect to see between
eBay’s stock activity and other auction players such as ONSALE or Egghead
with its Surplus Auction? If eBay is a highly successful IPO, as many
expect it to be, how much will this impact other players in the auction
category? Will this draw more investor attention to this business model on
the Internet?”

Reply: ebay’s (NASDAQ:EBAY) “personal auction” model differs from
Onsale (NASDAQ:ONSL) and Egghead (NASDAQ:EGGS). ebay lets people auction to
each other while the other firms auction items mainly from manufacturers.
ebay’s model tends to aggregate more people into the buying and selling
process. Onsale announced a deal with Yahoo to emulate ebay’s approach and
try it with Yahoo. Is EBAY a $1.7 billion market capitalization enterprise
while ONSL sits at $343 million? Doubtful. Give EBAY six months and we’ll
tally the market caps again and perhaps see a closer match or the gap close
one way or another on these two stocks being “auctioned” on Wall Street.

Investment Symposium ’98, Oct 8-9 @ F
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industry influencers and decision makers.” – Yahoo co-founder Jerry

Click the above link now and get this year’s power lineup.

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