eMailbag Monday: Comments On Check Point Software, Onsale, & More

“Could you tell me what your opinion is about Check Point stock (CHKPF)
and it’s future? Check Point has been a firewall market leader for the
longest time with stock price as high as 50 1/2. However, recently its
stock has been in a slump for no apparent reason.”

Reply: We believe that the security software market is long overdue
for consolidation, and that mold grows on parts of the franchise. The
leading firms such as Check Point Software (NASDAQ:CHKPF) and Security
Dynamics (NASDAQ:SDTI) so far haven’t led the charge here and Wall Street
may simply be getting impatient for any of them to scale.

Meanwhile, competition, or the threat of competition, looms larger from
IBM, Microsoft, Network Associates, and others. Check Point Software rules
in firewalls but can it extend that power to the wider security
opportunity? Somebody will. The rule on the Internet is “get big fast.” And
just when you think you’ve done so, get bigger.

On Or Off Sale?

“Do you think ONSALE (NASDAQ:ONSL) is comparable to Are there
any other competitors worthy of mention, or is sitting on top of
a monopoly? What is wrong with this stock? It gets added onto the Russell
3000 and tanks the next day? Is all this bad luck happening to just me,
’cause it sure does feel like my luck.”

Reply: Onsale runs Web-based auctions where bidders determine
ultimate sale price, while Amazon sells books, music and video the
fixed-price way. Part of the stock’s drop may be due to the increased
marketing of rivals and some of the novelty wearing off. Onsale competitors
of note include Surplus Auction, a division of (NASDAQ:EGGS)
and the privately-held eBay. We’ve always believed Onsale was a great idea
and leader, pioneering the combination of computing power (bidding and
processing bids) with the Internet (distribution and people). Room for
expansion exists in auctioning, as does the ability for Onsale to just sell
things, on sale.

Open Sesame

“I’ve been looking for value investments with the word value defined as
“about to rocket.” From information I have on all Internet stocks that I
know of, it appears to me that Open Market is a value:

  • 300% revenue growth rate
  • Ten top telecom corporations as clients
  • Recently signed UPS as a client
  • Projected to show sufficient net profit to have a 1999 P/E of 30
  • Proprietary software/Internet commerce with three major patents

Do you have any information on Open Market?”

Reply: Open Market (NASDAQ:OMKT) seems to have more than survived
in the commerce and information server software market while other large
companies have not made dents. In particular, its early bet on the idea of
e-commerce now begins to pay off. Some of Open Market’s customers-clients
include AT&T, Time Warner, Disney, CNET, and CitiBank. On June 4, Intel
bought 330,000 restricted shares of OMKT stock and agreed to jointly market
products based on Intel’s platform. We think OMKT may be a good way for a
larger software developer to buy into the e-commerce arena with a proven

Disney-Infoseek Team Up

“One input [on the Disney-Infoseek partnership]: Content delivery is the
main driver in this deal. Disney was smart in realizing that its
intellectual capital has a great new distribution channel (i.e., Infoseek).

To realize the $1.7 billion, however, this distribution channel will have
to exploit Disney’s content very well. People look at the Internet stocks
such as Yahoo!, Excite, Lycos, etc. as amazing opportunities. However, I
don’t give them as much credit since they have no real proprietary content.
They are basically a distribution channel that has no real barrier to
entry in the long run and while the size of the pie may get bigger, the
slices will become much thinner. Superior content will drive the real
winner, just ask all the old publishing companies.”

Reply: One thing overlooked in Disney’s decision is the new portal
the two announced they will co-create. Whether or not that effort flies or
dies as a revenue and earnings effort may likely determine the value of
Infoseek (NASDAQ:SEEK) shares more than what we think of as Infoseek today.

One notable downside to the deal: Infoseek has to buy $165 million in
advertising on Disney’s networks over the next five years, thus hurting its
bottom line in an era when earnings are becoming central to judging a Web
effort. Overall, however, we think that Infoseek needed a media partner to
ramp up and, as media partners go, Disney ain’t a bad one, unless it tries
to run Infoseek as its own division. Evolution not revolution. Search for
search sake becomes passe as ‘meta Web sites,’ or destinations, emerge.
It’s not about searching any more, it’s about finding.

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