The select few stocks we said to keep an eye on this year (see ISR
12-31-97) are up a blended 109% year to date, even after spiking
recently at all-time highs, a point profit takers may have taken advantage
of. Are the 10 still worth watching?
Eyes On The Net
Company | Symbol | Why | 12/31/97 | 5/20/98 | % change |
@Home | ATHM | Could be hybrid TV/Web ‘AOL on steroids’ service | $25.13 | $ 41.00 | 63% |
AOL | AOL | World’s largest aggregator of eyeballs & wallets | $45.25 | $ 86.50 | 91% |
Concentric | CNCX | Virtual networks & corporations | $8.88 | $ 22.63 | 155% |
Earthlink | ELNK | Debating how much portal dial up deals will affect it | $25.75 | $ 55.38 | 115% |
Infoseek | SEEK | Was at discount to peers now gap is gone | $10.75 | $ 29.25 | 172% |
Network Solutions | NSOL | .com is a brand, the suffix of choice | $13.13 | $ 41.06 | 213% |
Onsale | ONSL | More item sellthough potential than Amazon | $18.00 | $ 29.50 | 64% |
RealNetworks | RNWK | Streaming media – how long before Microsoft wants this space? | $13.88 | $ 24.78 | 79% |
Sportsline | SPLN | Share dilution when earnings come is a concern | $10.75 | $ 26.63 | 148% |
US Web | USWB | Web professional services in key cities | $9.38 | $ 20.75 | 121% |
TOTAL | 180.88 | 377.47 | 109% | ||
bold = softening our view on | AVERAGE | 18.09 | 37.75 | 109% |
Our instinct on three of the stocks (noted in bold) is to watch very
closely with extra discerning. Infoseek (NASDAQ:SEEK), for one, was
originally in the spotlight at our initial December 31, 1997 table because
our number crunching showed what we believed was a valuation gap between it
and the search sector peers. That gap seems to have closed. We still like
SEEK but now look for commerce and ad growth as reasons to keep it on the
list.
Internet service provider Earthlink (NASDAQ:ELNK) did some savvy deals,
especially with Sprint to feed it new subs. Its focus on customers is also
notable as we stated before. But the recent trend of portals such as Lycos,
Yahoo!, Excite, and Infoseek signing deals with AT&T or MCI to create
“virtual” ISPs or de facto online services, could threaten Earthlink’s
position in our view. At the same time, however, where Earthlink leads is
the hands on relationship with its customers that a Yahoo!/MCI doesn’t
have. If something goes wrong on a portal-telco ISP service who does the
customer call? And how much value does a portal add to an ISP anyway, the
content is already free. We’ll see.
RealNetworks (NASDAQ:RNWK) has done a good job of getting critical mass in
the early stages of the media streaming field. The lurking thought is how
long will it take Microsoft to handle RealNetworks the way it dealt with
Netscape? Give away streaming players and tools? Broadcast.com’s pending
IPO is an area RealNetworks could have leveraged into easily.
Sportsline (NASDAQ:SPLN) softened on the ongoing press war between it and
ESPN SportsZone. The Olympics are over; let’s see the sports hero Web deals
come to life before we get excited again about the action.
Our view on the others remains as it was, with a few new wrinkles. Although
@Home (NASDAQ:ATHM) reports a relatively low subscriber-to-homes passed
ratio, it could be one of the only true threats to Microsoft’s WebTV. Both
have about 300k subs. But @Home is lightspeed faster than WebTV Ma Bell
snail pace.
@Home’s cadre of cable giants already own the box at the TV level and we
doubt they’ll let Microsoft gain control of that box. Cable operators are
entrepreneurs, they often built their business one wire at a time
themselves–they know the game well. The Radio Shack brigade (PC industry)
wants to own TV but cable and broadcasters own the eyeballs and brands.
ONSALE (NASDAQ:ONSL), in our opinion, has more shelf space than Amazon.com.
Auction everything. Margins are thin but this is a volume exercise.
Egghead.com (NASDAQ:EGGS) to us is more of a market cap play than an
innovator to latch onto. Its SurplusAuction wasn’t smooth when we tried it,
but with its cash and main brand it has a chance.
A few stocks we thought may be worth a peek:
Who | Symbol | Why? |
Egghead.com | EGGS | Cash and some brand equity to extend |
E*TRADE | EGRP | A lot of built in leverage in financial services |
Mecklermedia | MECK | Cash flow to fuel growth in Web and events |
Amazon | AMZN | Movies and Europe and plenty of cash to play with |
Amazon.com (NASDAQ:AMZN), despite being a candidate for the stock most
likely talked about in e-commerce, and one that is severely over hyped in
the print and media space, just cashed up with a bond placement that was
oversubscribed and the amount upped to meet demand–$325 million. The
company has movies and music potential but the brand is book heavy so we’ll
see if it can make the shift to multiple products. Maybe.
Mecklermedia (NASDAQ:MECK), producer of this report, has real earnings and
cash flow to grow its already growing Web content network. The company’s
trade shows and conferences are pilgrimages for the industry.
E*TRADE (NASDAQ:EGRP) may be one of the most oversold e-commerce stocks.
Yes, Schwab and Fidelity have moved in, as has Ameritrade. But we think
E*TRADE is in the top tier here and holds a powerful position for growth in
financial services and commerce deals with other major players in banking
and financial services.
