eMailbag Monday: Go2Net, Insane Profits & Mutual Fund

First reader up this week writes: “Dear Steve: Go2Net: they turned a
profit. They went to an all time high. Now they settled into a mid 30 to 40
level. Should I take the profit? Buy more for the long run? Do you think
they have the potential to compete as a PORTAL?”

Reply: Go2Net (NASDAQ:GNET) has been on our radar for quite some
time, especially after it acquired Silicon Investor, the largest financial
discussion message site on the Web. November 23 Go2Net debuted a new front
end that provides easier clicks to its content and services. Since we’re
burned out on the word “portal” let’s use a more suitable word: “hub.”
Portal implies looking through to something else, hub implies sticking to
the site and what it offers.

Semantics aside, we think Go2Net is drawing
out its “hubness” and could find a niche that serves its audience. We don’t
think it’s a Yahoo-like audience which is wider and more general.

focus and integration are the two keys we see moving forward for sites like
Go2Net, which we think has significant traffic, with September page views
jumping 22% to 6.7 million page views per day vs. June. A page view
represents a few things that are important: 1) users 2) ability to grow
usage and 3) future revenue and earnings.

Good, Bad, & Then Ugly?

“I am long….i.e….long term re capital gains….AOL and
YHOO. I also hold small positions in an IRA account in Excite, Concentric
Networks, Visual Networks, CMGI and Checkpoint. I looked for what I thought
were good companies with a real long term future. However, what is going
on in the past two weeks has gotten me crazy for I feel that it will
severely damage, good and bad, large and small Internet companies when the
insanity stops. The craps table has moved to the trading screens, and it
seems that only a few numbers are being bet on.

Now although I am up somewhere in the area of 800% and I say
somewhere because at any given second the numbers change, in AOL and
YHOO I have the dilemma of whether to take profits and possibly say goodbye to two wonderful companies. I know that the traders who have driven up the price
of EBAY, AMZN etc have probably never read your column, but do you
think these 25+ moves are going to kill the good with the bad when it is
finally over?”

Reply: Buying and selling shares is up to you, we don’t get into
that game at all, preferring to voice our opinion with the investment
analysis and let you decide. Our thoughts on the frenzy: investors can try
and be speculators but it’s very risky, not knowing which way the whims of
the crowd will go.

As for AOL (NYSE:AOL) and Yahoo (NASDAQ:YHOO), both
continue to impress the Street with growth, revenue and earnings.

We believe a consolidation phase is taking place in the Internet on the scale
as never before seen, with AOL’s buy of Netscape (NASDAQ:NSCP) an example
of the mega-mergers we expect in this space very soon. The past four years
have brought patterns of success to the Internet and it all relies on
traffic and usage.

With traffic, a Internet company can basically do
anything it wants, any sort of business, service, offering. In the digital
realm (I call it zero gravity), the opportunities are almost limitless. Think about the
notion that people ascribe to Microsoft (NASDAQ:MSFT) – “embrace and extend.” Well, with the Internet I have a new one for you, it’s “extend and embrace.”

As for the 25-point moves for some Internet stocks, each has to be
evaluated case by case.

For example, we believe Onsale (NASDAQ:ONSL) may
have had some room to run while eBay (NASDAQ:EBAY), no matter what anybody
says with their so-called “buy” recommendations, we doubt is worth anything
near the $10-plus billion value it has (fully-diluted shares).

Want a
comparable? Look at Excite’s (NASDAQ:XCIT) Classified 2000. Nobody gives a
hoot about them if the value of XCIT shares is an indicator.

XCIT trades
at one-third eBay market capitalization and we believe Excite has a much
better overall leverage-ability than eBay. To us, Excite is a full-service
Internet media-commerce powerhouse vs. eBay’s beanie-baby antique parade.
Excite’s user base alone holds tremendous potential.

As far as the recent
run in Internet stocks goes, for the past 4 1/2 years I’ve believed the
Internet changes everything.

Does that mean a stock such as CDnow
(NASDAQ:CDNW) or Egghead (NASDAQ:EGGS) should double in one day? Probably
not. But if those stocks have been ignored for 60, 90 or 120 days then a
one or two-day burst may make sense as these stocks catch up to the sector

That said, speculating on these stocks may turn ugly if
stock buyers simply follow the herd no matter where that ends up. The
metrics that matter: management team, traffic, users, sales growth quarter
on quarter and year on year, gross margins, employee count, alliances,
partners, competitive landscape.

Mutually Speaking

“Please advise me what mutual fund company offer the fund that contain your
companies in the ISDEX or anything close to this index.”

Reply: We haven’t found anything that’s close to ISDEX and ISDEX
is not a mutual fund (yet). All the funds that call themselves “Internet”
have PC stocks in them so we cannot endorse any of them. Click
and vote
if you’d like to see ISDEX made into a mutual fund. We’d like to
see Fidelity, Schwab or Vanguard pick it up.

Attention Internet Startups! LaunchPad West StartUp
Pavilion, part of Spring Internet World ’99
, one of the world’s
largest Internet industry trade shows offers exhibit space for startups
ONLY at a reduced price in order to meet their often limited capital
available at the startup stage. Contact Sean Moriarty (hurry, space
limited): mailto:[email protected]

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