HotWatch For The Past 12 Months:The 10 End 1998 Up 312%

The motley crew of 10 stocks we selected to keep a
closer eye on in 1998 were up 312 percent through Dec. 30 as a group.
Network Solutions (NASDAQ: NSOL)led the gains with 800 percent. Sportsline
(NASDAQ:SPLN) brought up the rear with a 53 percent rise year to date.
The play-by-play and why these 10 were selected for a close look this past
year:


Let’s set the stage first. In January of 1998 NSOL’s fortunes
weren’t looking good to the uninitiated: pending expiration on the
exclusive ability for Network Solutions to provide “.com,” “.net” domains
was ending Spring last year and many thought that an onslaught of rivals
would commoditizes the domain registration business was imminent.


How 1998’s 10 to watch ended the year through December 30:




How 1998 Hot Watch Did:































































































Who

Symbol

12/31/97

12/30/98

% change

Network Solutions

NSOL

$13.13

$118.13

800%

AOL

AOL

$22.63

$147.44

552%

Infoseek

SEEK

$10.75

$49.94

365%

Earthlink

ELNK

$12.88

$59.56

363%

Concentric

CNCX

$8.88

$32.88

270%

@Home

ATHM

$25.13

$71.50

185%

US Web

USWB

$9.38

$24.63

163%

RealNetworks

RNWK

$13.88

$34.50

149%

Onsale

ONSL

$18.00

$44.00

144%

Sportsline

SPLN

$10.75

$16.50

53%

TOTAL

 

145.38

599.06

312%

AVERAGE

 

14.54

59.91

312%



ISPs, software companies and technology firms all lined up to get in on the
domain frenzy but the hand over and opening up of the process never
happened as imagined by the government or others.


Our analysis that inertia plays in NSOL’s favor–combined with the fact
that domain fees are paid two years in advance — led us to believe that
NSOL may enjoy not only a monopoly but a lead in several ways: time,
revenue, brand and competency.


Another factor in NSOL’s favor: cost of switching. If you already have a
domain registered with Network Solutions how likely are you to switch if
the cost is competitive?


AOL (NYSE:AOL) was 1998’s second-best in this group with a 552 percent
gain. Our thoughts 12 months ago were that AOL was the world’s largest
aggregator of eyeballs & wallets. With the pending acquisition of Netscape
(NASDAQ:NSCP), that statement proved to be more prophetic than even we had
dreamed.


AOL began realizing its advertising and marketing opportunities in mid-1998
with the $100 million Tel-Save deal, where the upstart long-distance
provider paid AOL $100 million to market telephone services to AOL’s
then-10 million subscriber base. Other multi-million marketing deals
followed in books, music, even food.


Infoseek (NASDAQ:SEEK), the runt of the search engine litter on
Wall Street ever since its IPO in 1996, had a few things we thought was
attractive: strong search technology and traded at a relative discount to
its peers way back in the days of January 1998. Since then Disney latched
onto to SEEK with a big 43 percent stake and some mighty mouseketeering to
come.


When Earthlink (NASDAQ:ELNK) founder Sky Dayton sat down with me in 1997
for a face to face meeting, I asked him what Earthlink’s best asset was.
Quite honestly I was having a hard time seeing how ELNK could be valued
since it doesn’t own its network or have a gazillion POPs all over the
world like PSINet does.


Sky said “customer service.” He mentioned that the largest part of the
Earthlink work force was involved in customer service–at the time more
than 600 people. He mentioned the experienced managers he and the board
brought in to grow the business and how capacity was beyond current subs.


Against that backdrop consider that at the time AOL was having huge
problems with busy signals, attorney generals were threatening lawsuits
against AOL.


We were convinced that customer service was the heart of a technical
enterprise that sells to consumers. If Earthlink fulfilled the promise it
had a chance to do well. Sprint bought 20 percent a few months into 1998 and
suddenly consumer ISPs were getting noticed. Why did Sprint buy? It’s in
the network business, not the “how do I configure my browser or dial up my
ISP and what’s a home page?” business. That’s Earthlink’s specialty, so
for the year that’s ending ELNK made the list. ELNK was up 363 percent in
1998.


Concentric (NASDAQ:CNCX) operated at the other side of what I felt may
be an attractive part of the ISP offering: VPNs. These “virtual private
networks” allow corporations to save money by using the low-cost
infrastructure of the public Internet for secure corporate networking.
Anytime you save corporations money it seems like a compelling business.


As 1998 dawned it wasn’t clear that cable modems or cable and Internet
would really come together at all. But having analyzed the cable business
in a previous life, I knew the cable guys were hungry for value-added
services.


And the cable guys understand what it is to be an entrepreneur.
That’s no small thing in a world where your local telephone company takes
you for granted and considers your phone bill a “right” or monthly
dividend.


The cable guys looking at the Internet were the same ones who
30 years ago climbed up poles and trees and strung their own cable systems
themselves. Glenn Jones of Jones Cable lived in his car and was a
one-man cable firm when he began. These guys and gals are entrepreneurs.
You’d never see the head of any telco doing that. It’s bureaucracy vs.
vision.


The biggest drawback of the Net was (and is) speed, lack of it.
Snail pace. Graphics routinely cause constipation. Cable modems looked like
they may speed up the process. @Home had TCI and Kleiner Perkins behind it,
the NASA Internet guru at the control center (Milo Medin) and an open road
ahead with its alliances with other cable operators. So far in 1998 I think
sign ups are slower than I would have guessed 12 months ago. ATHM still
ended the year with 185 percent upside.


The idea of having a company come and provide a turnkey Web presence for
corporations led me to include in 1998 USWeb as one to watch–and we
watched. The thinking was that not every company wants to hire a geek
brigade to run an Internet department. Outsource the entire thing.


While USWeb didn’t explode as we expected, as a nationwide phenomenon it
did well. By year end it had absorbed marketer CKS.

With its streaming software dominance in 1997 we selected RealNetworks
(NASDAQ:RNWK) for last year as one to watch. By default Real had at least 4
or 5 businesses under its
nose, similar to what Netscape enjoyed early on. The client pointed to the
Web site which pointed to the client. Millions of users of RealAudio looked
compelling.


ONSALE (NASDAQ:ONSL) was the only public Internet auction
house in late 1997, certainly the best known by far. The model of using the
Web’s distribution to link buyers in real-time was pioneering and led us to
make ONSL a 1998 stock we’d keep our eyes on. Of course since then rivals
have come in and added pressure, eBay (NASDAQ:EBAY) in the classifieds as
auction space, Egghead (NASDAQ:EGGS), which abandoned its gravity-bound
store chain for the Web, and more recently uBID (NASDAQ:UBID), 20 percent
spun off in an IPO from Creative Computers (NASDAQ:IMALL).


Sports aggregator Sportsline (NASDAQ:SPLN) began 1998 with some notable
attractions in our view: the Winter Olympics were coming and this would
likely boost CBS Sportsline’s Web users.


But it also had focused on one of three “killer ap” content categories on
the Internet–sports. Besides financial and computer info, there’s sports.
The thinking was that the TV exposure and male-centric Web user (especially
in early 1998) may be drawn to sports sites. We thought Sportsline would be
more well-known and bigger today than it is. But a 53 percent rise still
beats the Dow and NASDAQ by a long shot.


What about 1999? For 1999 Steve Harmon’s Hot Stock Watch may be available
as a monthly e-newsletter for a subscription fee, with updates on the group
coming monthly and even the stocks possibly changing of who’s in or out of
the spotlight in the fast-paced Internet. Interested in hearing more? We’ll
tell you all about it right here. Keep watching this space!

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