In my last column titled Net
Value,” I talked about revenue growth being the most important metric for
Internet investors at this point in time. This will likely remain true in the
near-term.
Still, there are signs that investors are tiring of
Internet companies’ seemingly endless expenditures and widening losses.
Take for example the trials and tribulations of Amazon.com (AMZN).
The leading etailer pre announced fourth quarter sales of $650
million, far eclipsing last year’s — as in 12 month — total sales of
$610 million. The company, however, issued an earnings warning noting
that the extremely strong sales would again not result in smaller
losses. The company will continue its enormous investments in
marketing, distribution, and customer service. Shares tumbled 12-3/16
to 69-3/4 and by Tuesday’s close were trading at 66-3/4, down 41 percent
from the $113-1/2 high reached only last month. Funny thing is,
Amazon’s growth strategy is unchanged — and investors know it. So
what’s up (or should I say down), with the stock? And who is doing it
right?
Yahoo! Inc. (YHOO) reported earnings on Tuesday, positively surprising the street for the
14th straight quarter. Revenues reached $201 million for the quarter and grew 140
percent to $588 million on the year. Oh yeah, Yahoo! also reported fourth
quarter net income (PROFIT!) of $57 million. Earnings per share came to 19 cents, 4 cents better than analysts expected.
Other Internet companies to report positive surprises: Ariba (ARBA) reported first quarter sales of $23.5 million. The B2B software procurement company’s loss was $0.07 per share, 4 cents better than the street’s expectations. Juno Online Services (JWEB) beat fourth quarter expectations by 10 cents a share, posting a loss of
45 cents.
But while the shares of Yahoo! may have plunged 39-13/16, or 10
percent, to 357-9/16 in Wednesday trading, some analysts and investors remain bullish.
“Yahoo! reported another great quarter, one that was stronger than
it looked first crossing the tape. While revenue and EPS did not blow
away the whisper numbers, the strength of the fundamental business drivers – audience, commerce, advertising and communications – suggests another great year in 2000” wrote Merrill Lynch analyst, Henry Blodget
in a note to clients.
Yahoo! has historically run up prior to earnings… fallen after the
actual announcement which has always been positive… only to rise again shortly there after.
“Q4 was operationally fabulous but investors might have been expecting
bigger numbers. As is YHOO’s pattern, we think the stock could show
some weakness over the next month or so. We think Yahoo! ends 2000 at
50 percent + higher levels than today, however, and we reiterate our Buy-Buy rating,” added
Blodget.
That being said, Internet investors should be aware of an important
development taking place. That is, the seasonality of Internet
stocks, especially consumer oriented issues such as portals and
etailers. A lot of the momentum and valuations given to these stocks’
is from the three business-to-consumer (B2C) growth drivers: 1)
percentage growth of new online users, 2) total e-commerce dollars spent
and 3) total advertising dollars spent. Naturally, these curves fall
after the winter and holiday seasons. As the temperature gets warmer,
less people are online (school is out etc.), which me
ans less traffic,
less e-commerce spending and fewer people to target with advertising.
Consider Yahoo! The stock which traded as low as $110 this past
summer, only weeks ago hit a high of $500-1/8. The stock has fallen
over 13 percent in the past week and currently trades at $346-7/8.
Amazon was at roughly $110 in May of 1999, but by August 1999 had fallen
to $41. The stock hit a recent high of $113 in December but has since
dropped to 65-5/16. eBay (EBAY)
traded as low as $80 this past August. Now at $137-13/16, eBay has
fallen roughly 10 percent in the last month. A similar story for Ticketmaster Online City-Search
(TMCS).
The stock traded below $20 in October, rose to $45 by December, and
currently trades at $33 after falling over 30 percent in the past
month. About.com (BOUT) was at $20 in August. After recently hitting a high of $100 in December, the stock now trades at 65-1/8.
It is likely that Internet stocks will remain highly volatile in the
coming months as most metrics such as traffic, usage and e-commerce
spending fall. It is these new-age metrics that largely support
Internet valuations. Falling metrics, mean falling stock prices but
Reporter@Large has found shelter in two sectors.
Infrastructure and business-to-business Internet stocks make the most
sense as long-term holdings for Investors. Reasoning: Companies such as
Inktomi (INKT),
Exodus Communications (EXDS), Internet Capital Group (ICGE),
and VerticalNet (VERT) benefit from the long-term, overall growth of the Internet without
having to sell their goods directly over the medium.
OK, get your No. 2 pencil and calculator ready, it’s “earnings” season
for the Internet players. The high-profile Internet stocks listed below will
be reporting within the next few weeks. Reporter@Large has listed their reporting dates, expected earnings per share (EPS) and expected earnings for the year. Revenue growth, narrowing losses, and the seasonality of
Internet issues will be the focus for Internet investors.
Akamai Technologies (AKAM)
Reporting: Jan. 14
Fourth quarter estimate: 30-cent loss
Year estimate: n/a
Excite@Home (ATHM)
Reporting: Jan. 17
Fourth quarter estimate: $0.00
Year estimate: 4-cent loss
Doubleclick (DCLK)
Reporting: Jan. 18
Fourth quarter estimate: 6-cent loss
Year estimate: n/a
Go2Net (GNET)
Reporting: Jan. 18
Fourth quarter estimate: 9 cents
Year estimate: 34 cents
Broadcom Corp. (BRCM)
Reporting: January 18
Fourth quarter estimate: 27 cents
Year estimate: 88 cents
Covad Communications (COVD)
Reporting: Jan. 24
Fourth quarter estimate: -$1.03
Year estimate: n/a
PurchasePro.com (PPRO)
Reporting: Jan. 25
Fourth-quarter estimate: 20-cent loss
Year estimate: $1.07 loss
eBay (EBAY)
Reporting: Jan. 25
Fourth-quarter estimate: 2 cents
Year estimate: 12 cents
Exodus Communications (EXDS)
Reporting: Jan. 26
Fourth-quarter estimate: 17-cent loss
Year estimate: n/a
BroadVision (BVSN)
Reporting: Jan. 26
Fourth quarter estimate: 6 cents
Year estimate: n/a
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