Internet Stocks Rise & Drop After Profit Taking

Internet stocks climb higher in early trading before profit taking shaves some of the gains in afternoon moves. The Dow and NASDAQ also fall slightly as the market inhales a dose of inflation fear again. The current ISDEX value is 505.22 with a change of-17.95(-3.43%).

  • CMGI (NASDAQLCMGI) is rumored to be interested in acquiring all or part of Compaq’s (NYSE:CPQ) Alta Vista Internet guide. I think CMGI needs some operating assets to bolster its assets under the 1940s Investment Act. Unless it wants to declare itself a mutual fund, which it clearly doesn’t.

    I believe that’s the motivation behind the move more than anything else. And the fact that CMGI probably would like to acquire Lycos but Lycos is too expensive. Alta Vista has been an anomaly at Compaq ever since Compaq acquired Digital (Alta Vista’s parent).

    What could Alta Vista command in terms of valuation? I would peg it around $1.75 billion in a public market for Alta Vista and other Compaq Web assets Zip2 and, maybe more if rival bidders emerge and depending on terms.

    But Compaq’s problems at the top with its hunt for an executive may prevent that from happening.

    As I said before, CMGI needs traffic and assets. See tomorrow’s Morning Report for more of my in-depth analysis.

  • Earthlink (NASDAQ:ELNK) pops on speculation that leading PC maker Gateway (NYSE:GTW) may acquire the consumer ISP. Gateway launched its own ISP tied to its boxes earlier this year and my guess is that Gateway learned a powerful lesson: it’s not prepared to be an ISP, which requires a lot of customer support to do right. Having known Sky Dayton and the team at Earthlink for several years I know it’s committed to customer support. Yes, glitches still occur but over half the staff at Earthlink is on customer support.

    Sprint (NYSE:FON) owns 20% of ELNK so I think it will have to approve of the deal or outbid Gateway should the PC maker bid. I can see ELNK in the $2.5 billion range in a competitive bidding situation, maybe more. That’s implies a value of about $2,500 per subscriber.

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