High Expectations Prove Hard to Match

For an industry that is supposed to be volatile and unpredictable, Internet companies are proving surprisingly dull in their quarterly results. Very few companies are releasing earnings reports with big surprises. Here’s a quick take on some of the more interesting Internet companies and their numbers.

Mindspring (Nasdaq: MSPG) has fallen out of favor as it executes on its ambitious long term plan, gaining strength in every region of the U.S. Even though Quick take: nothing has damaged Mindspring’s long term prospects since it reached a 52-week high of 77.56 in April. If anything, the longterm business climate is improving. Recent setbacks to AT&T in its effort to keep cable access closed are good news to ISPs like Mindspring who will be able to compete for subscribers as the installed base moves to broadband (Mindspring is offering cable modem access in four markets already).

Mindspring’s strategic deals for DSL with Bell South and Covad give it a second front for offering broadband access.

Longterm view: Mindspring is well positioned and as long as it keeps investing in subscriber growth
, it will be a longterm player.

Etoys (Nasdaq:ETYS) announced net sales have grown by 1,990 percent (you read that right: one-thousand, nine-hundred ninety percent growth). The market apparently wanted a new bicycle instead. dropped 1.03 to close at 38.25, a fraction of the retailer’s 52-week high of 85.

Quick take: Etoys suffers from IPO over-expectation syndrome. Impatient buyers expect it to over-take Toys R Us overnight. They’re likely to stay disappointed: for Etoys to build a lasting brand, it needs to deliver customer satisfaction.

Less patient investors will be pleased to see buried in the financial reports that Etoys had 467,000 customer accounts as of June 30, 1999, an increase of over 28% from 365,000 customer accounts at March 31, 1999 (which is a 2,290% increase in customer accounts over June 30, 1998).

More important is the growth in revenue from all-important repeat customer orders, which represented more than 40% of total revenues for the quarter ended June 30, 1999.

Long term view: Etoys does not need to show enormous growth in page views or customer numbers to be successful. It needs to build repeat business
and gain significant market share. It’s on that course.

Drugstore.com ended its first day as a public company with a market value of $2.7 billion. The online pharmacy, with a ticker of DSCM, hit $69 before falling to close at 50.25. The stock was priced at priced at $18, double its original filing range between $9 to $11.

Amazon.com has a 44 percent stake, guaranteeing both continued high interest in DSCM and valuable shelf space in front of the public for Drugstore.com wares. So far, Drugstore.com has moved only $4.2 million worth of merchandise.

Quick take: the climate in health care retailing is cut-throat and that will be good for Drugstore.com revenue. Long term view: Razor-thin profit margins will bedevil DSCM.

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