eMailbag Monday: Cendant, GeoCities, Netscape, CyberCash

First reader up this week writes: “Have you ever done any work on Cendent
(NYSE:CD)? They own the sites: Books.com, NetMarket, MusicSpot, GoodMovies,
match.com, and rent.net. They also have investments in NetGrocer and
possibly other companies? I imagine that these commerce sites are very
valuable. It could make an interesting tracking stock.”

Reply: We’ve looked at Cendant (formerly CUC) several times in
reports about other more nimble firms but not on its own given its huge
portfolio of non-Internet companies including hotels and rental car
agencies. As you may or may not know, recently Cendant got in hot water for
accounting irregularities and the stock dove for cover. However, CD trades
near its 52-week low. The assets are still in place. We have a report on
Cendant in the pipeline for Internet Stock Report after the dust settles
over there. The gist of it: the Web (in our view) is the glue for Cendant’s
array of firms. Can it put Humpty Dumpty back together again?

Gee Oh Cities

“I wish I would have heard of you or read your report before I purchased
stock in Geocities. Do you see any good news for them in the horizon?”
Thank You, A new fan

Reply: Take a look at a tidbit from August 12 Market Close GeoCities After IPO
glance. It’s still early in the ball game for firms in the community
space. Lycos (NASDAQ:LCOS) with its buys of Tripod, WhoWhere-Angelfire now
has more Websteaders than GeoCities (according to Relevant Knowledge). But
we believe there could emerge perhaps half a dozen or more community sites
and GeoCities is the first name people usually think of in this space. It
has a ‘Yahoo-like’ quality in our opinion.

Will the honeymoon last, can
GeoCities leverage itself into a larger Web presence?

Now that it has capital and access to the public markets, a stock that it
can use as
acquisition currency, and a stock to attract new talent via incentive stock
options the next 12 months will decide if GeoCities is prime real estate or
podunkville. It almost has to compete with the directory firms Yahoo,
Lycos, Excite, Infoseek in offerings or else merge with one of them.

Excite-GeoCities would be powerful in our minds, despite Excite’s bet
that smallish clubs will win out over topical-based communities. Although
Yahoo has first dibs on a deal we believe since it invested in GeoCities
before its IPO and investmate Softbank owns a chunk.

Netscape?

“Steve, now that Netscape has made the switch to being a destination, what
do you think?”

Reply: Since more than one reader asked that, here’s one of our
reports that Netscape co-founder and one of our readers Marc Andreessen
passed around Netscape at the time…January 6
Internet Stock Report. Seven months later we think Netscape has made
excellent progress on the Web with Netcenter with AOL’s Digital Cities and
another deal with Citibank a few weeks ago. Netcenter could still, however,
use some aggressive marketing clout and some more features that put it
ahead of the “Web pack” YHOO, XCIT, SEEK, LCOS.

Cashing In

“I was looking at CyberCash and wanted to see if you thought it might be a
buy at this time. I saw it is close to 52 week low. I saw it is ranked at the
bottom for companies in the industry. Your comments are appreciated. I
enjoy your report daily.”

Reply: We think CyberCash (NASDAQ:CYCH) credit processing unit
holds potential as credit cards migrate to the Web as the de facto “digital
currency.” And while we were skeptical of CyberCash’s original e-currency
plans news, August 20 looked interesting. CyberCash now promotes a new
technology called ‘InstaBuy’ for launch in October that stores your credit
card data on a merchant server (or CyberCash server) allowing you to make
one-click purchases on the Web.

But, again, doubts rise. Microsoft
(NASDAQ:MSFT) has a wallet feature embedded in the browser already, a
feature taken right out of Bill Gate’s book ‘The Road Ahead,’ (AKA The Road
Others Travel First And We Pave Over).

Amazon, The Unabridged

“Steve, may I refer you to an article
titled “How Much Is a Tulip Worth?” recently published in the Financial
Analysts Journal dated July/August 1998, and also to a USA Today article
published 7/7/98 Titled something to the effect of “Internet Mania”. What
is the deal with the ridiculous prices being paid these Internet stocks?
Amazon.com has recently worn a sore spot in my saddle with the share price
rising from $40/share up to the $140/share range. Kudos to those who got
in early, but you would have to advise these people to cash out quickly.

There seems to be no regard for the fundamentals in the valuation of these
stocks. This is highlighted by the fact that 60% of the stock is held
internally (AMZN), and 20% by institutions. The remaining 20% seem to be
caught up in this frenzy of the Internet and pay no regard to the
fundamentals of a company who 1) has never turned a profit, 2) is projected
to lose more per share next year (1999), than they did last year(1997)
($1.03/share-1997 vs. $1.13/share loss-projected 1999, 3) only posts
revenues of $2.325/share (as compared with a MSFT $5.21/share, and MSFT
cost of sales are much, much lower), and 4) for heavens sake, is BOOK STORE,
with a market cap of $6.4B.

The company only employs about 650 people, so a head count reduction is not
going to be any place to cut costs. I realize the company is moving into
music and video sales, but as far as I am aware, you don’t overcome losses
through an increase in volume if your operating margins are negative. That
only seems to exacerbate the problem (which is what is projected by the
increase loss per share projections).”

Reply: We agree that fundamental valuations are unearthly. In our
opinion Amazon would have to become the Wal Mart of the Web to sustain the
valuation level it has today, according to our analysis. It looked
attractive back in April but since then AMZN soared more than 320% to
$129.6875 per share. Business-to-business e-commerce along the lines of EDI
and e-commerce services appears to be a much deeper market than books, music
or videos. That’s one reason we now think USWeb (NASDAQ:USWB), Open Market
(NASDAQ:OMKT) and Verisign (NASDAQ:VRSN) may be worth a look.

Note: as the leading Internet stock barometer on Wall Street, ISDEX, The
Internet
Stock Index, adds eight new stocks today to keep it on the leading edge of
new companies and industry moves. The newbies: Broadcast.com (NASDAQ:BCST),
Broadcom (NASDAQ:BCOM), GeoCities, Exodus (NASDAQ:EXDS), Inktomi
(NASDAQ:INKT), ISS Group (NASDAQ:ISSX), Verio (NASDAQLVRIO), and 24/7 Media
(NASDAQ:TFSM). Please do keyword search of the Archives of Internet Stock
Report for our most recent analysis of each of them.