eMailbag From Readers: Search, eBay, CDnow, ISDEX & Zero G

First reader up this week writes: “How do you see the big four
engines (yhoo, xcit, seek& lcos) competing with each
other (i.e. is there enough for all to fare well?) and also with the
“new” engines recently introduced to the net (snap, go…etc. which come from
deep pockets and advertising experienced parents)?


Do you see a rational
for owning all 4 (especially in view of limited earnings/losses still being
reported)?”


Reply: I believe each is and must differentiate itself from the
others more and more. Yahoo (NASDAQ:YHOO), Excite (NASDAQ:XCIT), Infoseek
(NASDAQ:SEEK) and Lycos (NASDAQ:LCOS) could shake out like this in our
opinion: Yahoo may win the traffic war and leverage users into anything hot
that comes along that it buys or borrows (it also may fight head to head
with Microsoft for user attention span).


Excite may win more accolades,
roll up some more users, and maybe gets taken out by a media firm (the
acquisitive News Corp. perhaps?).


Infoseek (already in a pending equity sale
to Disney) eventually may become Disney’s Web division under the Go.com
name (as long as Disney doesn’t fumble it).


Lycos (NASDAQ:LCOS)
could win the community-directory space as both serve each other and build
on mutual strengths (communities need directories and directories need
communities, same as you use Yellow Pages in your city).


That’s one
hypothetical scenario built on having watched each of these firms from the
first day they began as private companies in 1994-95, on through to IPOs in
1996 and to the current state of the art for each of them. Each seem to
have the chance to create a unique position in the spectrum of Web
directories and guides. Predictions that a “winner takes all” haven’t
proven true yet. Each generates substantial advertising and marketing deals
already.


It’s no surprise, however, that we think user and page view
leader Yahoo has the most enviable spot of all of them at this juncture.


‘Antiques Auctions’ Doesn’t Have The Same Ring


“There’s one thing that everyone seems to be overlooking (about
personal auction leader eBay) and that is that fully half the sales
revenues are from professionals like antique dealers. Only a small
percentage of the antique dealers are on EBAY now. Winter is coming and
antique business will slow, so it is expected that more dealers will come
aboard and the existing dealers will have time to list more items!”


Reply: EBAY enjoys the market magic associated with a category
killer. See
Internet Stock
Report, Oct. 27
for our further analysis. Some of those piling into its
stock may not know why or what for.


But while antiques represent a
multi-billion market we also believe that sheer euphoria may have gotten
ahold of EBAY shares lately, with other analysts predicting share prices
north of $100 for the firm.


As you know, we don’t get into the share
price target game or buy, sell or hold matches. We have always advocated
giving you our opinion based on solid research and letting you decide what
fits your investment criteria. Educated investors are our goal.


That
said, EBAY’s model looks like the purest e-commerce model we’ve yet seen and
our hats are off to them.


Hop, Skip & Jump?


“I think Internet stocks are the wave of the future, but I
don’t know what will be a good investment. I currently own NETA as my
Internet play, would you say that it would be good to get out of NETA and
into CDNW (which I am curious about being a big bet on for the future) or
move into something you like.”


Reply: Network Associates (NASDAQ:NETA) signifies a more mature
(as in larger revenue but slower growth) Internet-desktop software
investment with its market cap nearly $5 billion. With a market cap of
about $120 million, CDnow (NASDAQ:CDNW), is more of a young company still
trying to secure its leadership status in Web-based music selling.


As you
may know, CDnow and rival N2K (NASDAQ:NTKI), agreed to merge just a few
weeks ago in an effort to combat newcomer to music sales Amazon.com
(NASDAQ:AMZN), which posted better sales in its first quarter selling music
than either of these two separately.


A combined CDnow-N2K would have
sales about 40% better than Amazon in the latest quarter, and re-establish
CDnow as the undisputed leader in music sales on the Web.


In that case,
CDnow looks like a featherweight while Network Associates more of a
welterweight in terms of size, reach, channels, personnel, products. As I
said, NETA is more of a stable play in my view but lacks high growth. CDnow
has the excitement of growth but carries much more risk. For example, in
its latest quarter ending September 30 NETA posted $242 million revenue and
$132 million loss.


CDNW posted $13.9 million sales and $12.8 million
loss. They are very different investments. In our opinion NETA’s
marketshare looks more defensible since it’s proven itself over the past
years in its marketplace for network and Internet security software. Also,
its recent losses are owed mainly to new acquisitions that could inspire
growth. CDNW has a longer way to go to prove itself in our opinion.


ISDEX Mutual Fund


“What kind of investments are available for investing in the Internet? What
I am most interested in is a mutual fund or other security interest into
the ISDEX.”


Reply: There’s a few funds that call themselves Internet funds
but have too many PC stocks in them for us to consider them true Internet
mutual funds. Nobody does an ISDEX Mutual Fund yet although we’re taking
your votes for one,
clic
k
here.


E-commerce Ideas In Orbit


“The initial observation of bricks and mortar always
begs the comparison with catalog shopping, and for physical goods most
likely always will: because you have tangible stuff, you’re going to have
to move it, if not warehouse it. The true leverage that you’re describing
— selling things that you don’t own and will never touch — is
everywhere, from Wal Mart to basic brokerage.


Reply: The Internet and e-commerce are in the early days of this
phenomenon. I expect more robust examples to emerge of firms leveraging
this newfound ability to leap up and never get pulled down, or get pulled
by other things than gravity (old ways of doing business).

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