eMailbag Monday: Phantom Internet Stocks? E-tail, & More

First reader up writes:


“Steve: How about phantom Internet stocks? Barron’s thought Fed Express
could be a winner from all this e-commerce. What about companies that make
e-commerce software? Like Open Market or Broadvision. Didn’t Intel just
buy a privately held company that makes e-commerce software iCat. What’s the
future for these company types?”

Reply: For e-tail, the overnight shippers are effectively the
shipping departments of those companies. Outsourced shipping. Another
reason why e-tail is in the “zero gravity” space (a term I coined to
describe e-commerce efficiencies, better margins, global markets and
instantaneous, endless assortment of goods and services). So all the
shippers could be winners.

As for Broadvision (NASDAQ:BVSN) and Open
Market (NASDAQ:OMKT), both firms seem to have what we think could be 1999’s
mantra for all businesses: e-commerce, which, despite the headlines, has a
long way to go in every area. Most forecasters get excited about projecting
$350 billion in ecommerce in a few years. The flaw there though is that
these are linear projections and do not factor organic systems.

At its
core the truly successful ventures on the Internet are all organic, as a
cell splits and multiplies from one to two, four, eight, sixteen…so we
think the correct way to do an ecommerce forecast–and we’ve done these
many times–is to look at it like this: we think ecommerce could be at
least
$350 billion but probably much larger than that if the biologic
nature of growth of the Internet commerce continues.

Further, if you
consider that perhaps as many as 95% of ALL businesses in the U.S. are not
on the Internet then you begin to see fertile fields for all kinds of brand
new ways to get them on and in the Internet. Is it bright enough in here
yet?

24/[email protected]


“Your opinion on TFSM would be appreciated, I had originally bought at $17.
Took profit on day after Thanksgiving, but still have 700 do you think this
is the number #2 advertiser on the Internet?”

Reply: According to Media Metrix, 24/7 Media networks reached
44.1% of all Internet users and had 26.7 million unique users in September
1998. In June, rival DoubleClick (NASDAQ:DCLK) reported a 29.4% reach over
170 sites in its network. While the months are not the same this suggests
that 24/7 could be #1, unless DoubleClick grew its reach 15% since June
which seems unlikely.

We have a belief that owning the #1 and #2 in any
Internet category may probably be a pretty good spot to be in. If you’ve
covered your costs basis in TFSM then it’s really up to you to decide if
you like owning a #1 or #2 in the Internet ad arena, what your return
expectations are and over what period.

Defining Moment


“Could you clarify for me what is meant by WEBDEX? I am a new subscriber
to ISR and am trying to catch up. Is this assuming a new methodology for
valuing these companies that is tied to users. Is users synonymous with
hits or more discerning? Thank you very much for your help and keep up the
great work.”

Reply: WEBDEX is a term that describes a metric I invented in
early 1996 for valuing Internet companies by dividing market cap by number
of unique monthly users (provided by Media Metrix). That way of valuing an
Internet company has since been picked up and is now widely used on Wall
Street.


Hang Gliding On Wall Street


“Dear Steve, i am a hanglider pilot and so don’t mind living dangerously. I
am just about to take my first ever steps to invest in the stock market and
after seeing on the news what has happened a few times when new Internet
stocks hit the market, i am thinking about investing all i have which
totals around twenty five thousand dollars in this area.


As I said I
don’t mind living dangerously but would obviously prefer not to make a
complete mess of my first stock investment. I don’t want to gamble on
safer blue chip stocks as i feel this is ok for people with plenty to
invest who stand to make a lot even if something goes up only 10 percent.
I want to use my small amount in an attempt to make a large win in spite of
the risks.


I know you cant see into the future but you seem excellent in your
predictions with regards to Internet stocks and I would greatly value your
opinion about infospace.com. Do you foresee an increase in the stock value
as happened with XOOM.com or do you feel the gains will be considerably
more modest. Do you foresee a chance that there might be considerable
losses?. Is this a share one should purchase and sell the same day? The
stock was supposed to hit the market on the 11 Dec and now I hear it is
delayed. Do you have any idea when it will open and do you see anything
negative in the fact that it has been delayed. On CNBC television I get the
feeling that the conventional investors are very irritated about the vast
increases in Internet stocks and I hear rumors that they would like to ruin
this area for green investors like myself so that the big players rule the
market once more.


Do you think they can do this and if so do you think
they might have something up their sleeve (perhaps connected with this
delay) which will ruin the gains of infospace.com. Do you think that this
year’s Internet ‘gold rush’ with stocks like XOOM is a thing of the past or
is this only the beginning of events like this? I would really appreciate
your answering any of these questions and feel there may be many other
completely green investors who are wondering the same as me – maybe this
would be a good subject to discuss in one of your excellently written
analysis.”

Reply: Infospace.com is scheduled to go public this week. Watch
the news for when and how much. I believe the better quality Internet IPOs
could do well on opening but there has also been a handful now that have
gone public and sapped up some of the demand.

In my universe of thinking
from left to right along a continuum goes like this: content at the far
left, valuable but not the most efficient way to convert users into revenue
via ads. On the far right I see commerce, where every click can generate
revenue that far exceeds the pennies paid for every banner ad that content
relies on.

On that “webline” then I would place a content stock as
attractive but an ecommerce or etail stock as more attractive. For example,
well over half XOOM.com (NASDAQ:XMCM) revenue comes from selling stuff. And
something like eBay (NASDAQ:EBAY) is a commerce machine if it can ever
outgrow the stigma of being a beanie baby, furby frenzy, or when it’s not
booting off members critical of its lack of service or getting sued.

Forget E.F. Hutton, Peter Lynch or Warren Buffett…


“Steve Harmon is the guru of net stocks and the Internet. He is the ONLY
Internet analysis I follow and I make most of my stock buys according to
what he thinks. He has made me a whole lot of money. Go Steve, you are the
man!”

Reply: Thanks for the compliment. Our commitment to you is
nothing less than the best analysis, the best info, the best understanding
of what the Internet is and could represent–as well as the best ways to
use the medium itself to buy, sell and trade stocks and investment info
from private to public firms.


When we started in 1994 we foresaw that
the Internet would change business and consumer habits forever and since
that time have analyzed all the firms in this space up and down, since
before Amazon was Amazon and Yahoo was Yahoo. And you ain’t seen nothing
yet!



  • Tell us what you think was the biggest Internet industry
    moment of 1998, either personally for you or for the industry as a whole –
    results published here shortly. please
    click and tell us your pick
    .





  • 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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