eMailbag Monday: Portalmania, Peapod, Disney, @Home

First reader up this week asks:

“Just 2-3 months ago it seems that there were only a handful of portals (Yahoo, Excite, AOL, etc.). Now, it seems that the portals are proliferating. What I am referring to are the Netscapes, Gateways, and possibly the At Homes and Amazon.Coms, and apparently many others, getting into the portal arena.

What is the effect of this? Won’t the fragmentation that we are seeing
reduce the value ($) of the Portal?”

Reply: Let’s use the cable and broadcast industries as an example. The proliferation of cable networks didn’t reduce the value of the broadcast networks. A top group of directory-oriented Web services will retain their value over time as “broadcasters” of Web content, what we call ‘Web networks.’

Portals are just one metaphor for the Web experience, though, and certainly not the only one. Commerce is another approach, one that is far larger than searching and finding (or not finding as is the case with 2 million results for any given search).

Other approaches? Communications, content, connectivity, community, entertainment and more. Not one of the Web networks brings the complete Internet experience to users. It’s like trying to bottle the galaxy and slap a brand on it. At some point it’s an oxymoron. It won’t stop Microsoft from trying.

Web Eggs& Ham

“I’d like to get your advice on Peapod. Peapod claims it is the largest online grocery in the world. Is is really an Internet stock? What is its growth potential?”

Reply: We’ve always liked the idea of Peapod (NASDAQ:PPOD) from a user perspective. Here’s some words from the company about itself: “Peapod now serves over 103,000 members and has achieved cumulative revenues of approximately $120 million, while currently serving areas covering only 5% of U.S. households. In addition to honoring approximately one million orders, Peapod has also sold and delivered more than 40 million products, including nearly 200,000 pounds of peas and over 3.5 million bananas.”

First quarter revenue was up 56% to $18.9 million but losses were about $4 million or $0.24 loss per share. Up until now we haven’t thought of PPOD as a particularly attractive stock, however. To us it requires too many people to shop and deliver goods, which eradicates much of he benefits of being an Internet-based business. In a word, scalability.

That said, Peapod now also lets its shoppers buy prescription drugs and non-perishables, which seems to be a move in the right direction. We would call PPOD an Internet stock that’s perhaps poised to get some recognition for its strong revenue growth. The losses, though, may hold PPOD back.

Seeks Price

“I am in Infoseek (NASDAQ:SEEK) @ $38 and am wondering if you think it could hit $80 by years end.”

Reply: In Internet Stock
Report June 19
we delved into Infoseek and its deal with Disney. Check out that analysis.

Some additional thoughts: Look at Sportsline USA (NASDAQ:SPLN) valuation and imply a similar one (or better) for (now part of Infoseek). Add the other Disney Web assets and SEEK could be very valuable in 12 months. Why have SEEK shares suffered and not gone through the roof? Wall Street perhaps wanted an up front premium not a promise of one by combining assets.

Correction: We reported AT&T agreed to pay $5.5 billion for TCI’s 40% of @Home (NASDAQ:ATHM). TCI Ventures–National Digital Television Center, Western Tele-Communications and its @Home stake–are valued at $2.5 billion in cash according to news from AT&T.

That means AT&T got ATHM shares cheap in our book. We believe that @Home represents one of the next-generation companies in the Internet space that combines the content of major media with unsurpassed communication and connectivity at high-speed–always attractive. @Home has a lock on the cable Internet universe and could be to high-speed services what AOL is to telephone-delivered ones.

Speaking of @Home, if we didn’t mention this here we go: In response to our survey that asked if you would pay $40 per month for its 1.5 megabit per second service, more than 400 respondents (95%) said “yes.” Some begged to have it in their areas and others went so far as to say they are considering moving to areas where @Home is currently available just to have it. If the survey means anything it’s that main street wishes it was @Home now.

It’s here this week! See Steve and other Internet investment folks talk stocks and venture capital at Summer Internet World, July 15, Chicago.

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