eMailbag Monday: OneMain, VerticalNet, Up 100%, China?

First reader up writes:
“Steve, first of all thank you for putting the recent Internet stock downturn April 19 in perspective. Virtually all the news organizations on the Web and TV (print also) paraded out the ‘I told you so’ about Internet stocks and the bubble bursting theory. While these so-called ‘analysts’ spouted off I looked to your pulse of the stocks and recommending that we look at market leaders that tumbled with the fall. I am up at least 20% on doing just that.”

Reply: As an Internet stock analyst the past five years I’ve seen the ups and downs many times over. Let’s see some of the market leader numbers April 19 vs. April 23, if you would have taken my advice to buy on that dip: AOL was up 26%; Amazon, up 32%; Yahoo, up 15%; CMGI, up 21%.


“Steve, what do you think about OneMain (NASDAQ:ONEM), could be a up and comer?”

Reply: On a pure valuation basis I believe ONEM looks fully valued at present levels. I think any ISP needs to get to the 1 million threshold to gain critical mass and raise its profile.

Do I think OneMain will get there? Roll ups in the ISP space are long overdue in my view, with 5,000 ISPs in the U.S. alone that’s quite a huge selection. Mindspring (NASDAQ:MSPG) and Verio (NASDAQ:VRIO) have been active hunters here. Now that it can acquire with stock I expect ONEM to
get aggressive in its acquisitions.

Simply Business

“Steve, VerticalNet (NASDAQ:VERT) has become the darling of so-called business-to-business Web firms, any thoughts on who wins here?”

Reply: Any large Web site has the potential to become a player in B-2-B. But I think smaller vertical-niche players stand a better chance. The Web is about focus, dedication, providing a relevant experience in a world that battles second by second for your eyeballs.

Regarding VerticalNet I am fascinated by its straight-forward Web sites yet I want to see more traffic, revenue and user growth before I believe this company is worth more than $2 billion market cap. Its revenue in 1998 was $3 million.

To me one of the areas of B-2-B that looks attractive are the enablers, those that let businesses get on the Web and run commerce. That’s everything from IBM (NYSE:IBM) to Broadvision (NASDAQ:BVSN).


“Steve, what do you think about Xin Net (XNET), a Chinese Internet stock?”

Reply: The Chinese market is in its nascency and to me represents a different investment strategy than the U.S. While the market opportunity to reach 1 billion people sounds good the reality is that few Chinese have Internet access.

While growing, speculating on a small company such as Xin Net seems very risky to me at this point. It counts 20,000 subscribers to its ISP and has efforts at providing auctions and English-language training via the Web.

Picks & Pans

“Steve, because of your Internet stock picks this year I am up more than 100%. Just wanted to relay a sincere thank you for making sense of this fast-paced realm.”

Reply: My goal is simple: to provide the investor with analysis that helps them make better decisions. Glad to see it helped you.

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