eMailbag @ Internet Stocks

First e-mail up this week asks: “Steve, nice analysis on Ask Jeeves. Do you think Jeeves has a chance against the “Big Boys?” what do you think of the current price?”

Reply: I think there’s an opening for pure search again after the first wave of search engines became wider and deeper (and not known for search any more as much as being destinations).

Ask Jeeves (NASDAQ:ASKJ) was one I have looked at many times over the past few years. The user experience gets kudos for natural-language type of queries but no kudos for its laborious phrasing, seems stilted to ask proper questions.

Is ASKJ a $1.75 billion firm in my opinion? No. Revenues for its latest quarter (3/31/99) were $1.1 million while losses were $4.9 million.

I like Ask Jeeves model but think it needs to prove itself further before the valuation means anything. Similarly, GoTo.com (NASDAQ:GOTO) seems a little ahead of itself on valuation. Although I believe that both of these firms may fill gaps left by the mergers of Excite-@Home and Disney-Infoseek. I’d like more time to see execution rather than expectation.

Digital Island, Or Gilligan’s Island?

“Steve, what do you think of Digital Island (NASDAQ:ISLD), will it be able to compete with Exodus (NASDAQ:EXDS) or others?”

Reply: I like private global network services Digital Island’s roster of 62 customers, its global outlook and suite of services including co-location, outsourced hardware, and other offerings. Digital Island’s clients include Cisco, E*TRADE, Mastercard, Novell, National Semiconductor among others.

Revenue is ramping with six months to March 31, 1999 of $3.8 million vs. $691k the prior year period. Losses were $14.9 million which I can see with its global expansion plans in place.

High Speed Access & SoftNet

“Steve, do you see High Speed Access (NASDAQ:HSAC) being 3x the value of SoftNet (NASDAQ:SOFN)?”

Reply: Microsoft co-founder and billionaire Paul Allen owns a significant stake in High Speed Access Corp., a cable Internet service provider that competes in some realms with @Home (NASDAQ:ATHM).

SoftNet has a smaller focus, partnering with smaller cable operators, so they are not apple to apple in my mind.

Through Paul Allen’s Charter Communications cable group I can foresee High Speed Access Corp. having just that with up to 10 million cable subscribers perhaps some day.

Keep in mind that the cost to upgrade cable subscribers for two-way Internet is substantial, several hundred dollars per subscriber. Very few folks other than Paul Allen can afford that adventure. For the long view.

Game For Gaming?

“Dear Steve, is SNMM all hype?–or is there something real about it?–is the Kyl bill a threat, etc?”

Reply: StarNet Communications (NASDAQ:SNMM) produces Web sites aimed at bookmaking and currency exchange. While gaming (a fancy word for gambling) is popular, there are concerns to me about government regulation of the sector on the Web.

Certainly, online gaming is big business. Vegas is built on just that. Not many stocks in this sector get attention so I think SNMM may be the recipient of much if that lately, attention.

SNMM was under $1 in the past 52 weeks and hit its recent high of $24.75 Friday July 2 on recent news about a horse racing simulcast agreement signed July 1.

While the stock has posted strong runs I tend to shy away from businesses that the government(s) of the world may want to regulate some day. Governmental moves are a wild card to me that has nothing to do with a company’s ability to execute or the market potential since who knows what politicians will do?

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