eMailbag Monday: Market Madness, Mickey Mouse & More

First reader up this week writes: “Just looking for your opinion with the
present major declines in the market…is now a good time to pick up
stocks? Which four would you consider in Canada and the U.S.?”


Reply: All the indices wiped out most of the gains this year in a
single week. It was the worst drop in a week in 10 years. It’s like 1998
never happened with the Dow, NASDAQ, or ISDEX. On a price-weighted basis,
one high note is that ISDEX is up about 50% because of the IPO pricing for
new issues and after-market jumps from there.


What’s next? Here’s one
scenario being bantered about: with global currencies and stocks being
devalued, a ‘flight to quality’ may ensue. This would drive up the value of
the
dollar AND U.S. equities, as foreign investors look to exchange ‘bad paper’
(their currency and stocks) for ‘good,’ (greenbacks and U.S. blue chip
firms) thereby locking in their losses from further losses.


Concurrently,
if the Federal Reserve lowers the cost of money that could make expansion
for companies easier. How? It enables corporations to borrow cheaply and
expand domestically and abroad (since international markets may be
extremely receptive to new money, especially quality money). The trick
could be to play this out without triggering inflation.


For Internet
stocks per se, we believe that the U.S. marketplace is the primary outlet
for growth in the still nascent Internet industry–that enough demand
domestically could very well fuel this industry for another 10 years
without leaving U.S. shores.


But we don’t think the situation is as
dramatic as that. The downturn for international markets could actually
boost the U.S.-centric nature of the Internet as global enterprise.


The ones with the expertise, capital, resources and ability may be able to
deploy globally into a market with firesale prices for telecom
infrastructure, cable systems, and a hunger to get liquidity for national
assets.


Nuts and bolts business-to-business datamation, network services,
commerce systems, workflow, content distribution, security solutions, every
aspect of the value chain to run the new enterprise looks attractive in our
opinion.


Which four for the next three months? We don’t recommend
individual stocks so we won’t name four–that’s your choice. Along with the
entire ISDEX 50 we are keeping a close eye on AOL (NYSE:AOL) as consumer
leader; Exodus (NASDAQ:EXDS), USWeb (NASDAQ:USWB), Broadcom (NASDAQ:BRCM),
WorldCom (NASDAQ:WCOM), Microsoft (NASDAQ:MSFT), AT&T (NYSE:T) and Sun
(NASDAQ:SUNW) as b-to-b heavy lifters.


IPOWatch


“Steve, I wanted to get your input on a young startup, Interworld Corp.,
located in
NYC. They market a high-end e-commerce product and have recently registered
with the SEC for an IPO.”


Reply:Interworld’s IPO is on tap for Internet Stock
Report’s Internet IPOWatch. Another resource is InternetNews.com finance
and business stories.


Disney & N2K?


“Dear Steve: Why
is it that we are seeing so few acquisitions of certain Internet properties
that are way off their highs like CDNow and NTKI? I understand that these
companies operate in a low margin business (today), but for record
companies and media companies they could be key strategic assets in the
future world of electronic distribution of music and video.


For instance, why does a Disney not pick up an N2K at today’s bargain price of
around $150-$200 million? For Disney it would be a great strategic move
into the music distribution business and a tremendous asset in the build of
their own music business. Which could give them a stronger position versus
the Time Warners of the world.”


Reply: Disney and the large media companies debate the merits daily
of what to do with the Internet. At the end of the day they continue the
debate. And tomorrow they debate it again. And so on. The great debate.
Meanwhile, an industry grows and passes them by. If any of the large media
firms had real foresight they would be Yahoo, Amazon, Netscape,
RealNetworks.


The reality is that their teams of lawyers prevent them from
doing anything meaningful in this space. Distributing music electronically
via the Internet is not controllable enough for business models built on
yesterday’s thinking. Copyright law is based on 19th century notions.


Another thing they struggle with is valuing Internet companies. Firms
such as N2K (NASDAQ:NTKI) have several layers to look at–the e-tail
aspect and the software distribution segment, as well as existing deals to
promote the brand. Increased competition also makes the market less
attractive to buyers as firms such as Amazon (NASDAQ:AMZN) who try to buy
their
way to the lading e-tail spot.


Large media companies are more likely “look and see what happens” type of
players than anything else.


Although Disney (NYSE:DIS) did make a $430
million investment in Infoseek (NASDAQ:SEEK). One small step for Disney,
one large step for media kind?



eIPO


“Steve, who is handling the IPO of eBay? Is it coming out this week?”


Reply: Goldman Sachs leads the underwriting syndicate. eBay’s
pricing will depend on the market, which as we all know depends on if we
all learn to speak Russian.




Internet
Investment Symposium ’98 @ Fall Internet World!

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conference to network with industry influencers and decision makers” –
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