eMailbag Monday: Calling .Com, CyberCash, Spyglass, Wal Mart

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

Will both these stocks be worth what DT and Motorola paid for them?
We consider these two research and development for the telcos who may want
to provide IP communications. On the Web our belief is it may be cheaper to
buy than build.

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.

Virtual Payments

“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.

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 (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),
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


“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.

Emotional Rescue

“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!

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