Many-To-One: Total ISDEX Market Cap Equals Microsoft

On any given day, depending on the adrenaline levels of Wall Street, the ISDEX total market cap and that of Microsoft trade at similar levels, about $400 billion. Our analysis shows that ISDEX represents 95% of the market capitalization of the Internet stock universe, and yet these 50 companies are valued on par with just one PC stock.

If we take away Cisco’s $162 billion contribution to ISDEX, another interesting thing occurs–the 49 other stocks in the index trade at 62% of Bill Gate’s software machine.

While we agree that hype and overvaluation may be part of the overexposed brand names in the Web space, the comparison raises questions about the nature of valuation once again.

The key difference is Microsoft’s obvious dominance of the desktop, giving it huge sales and strong earnings that consistently beat the Street, not to mention its leverage across media, technology, and finance circles that its cash horde provides. Many firms on the ISDEX may never see that kind of staying power. But some could.

Let’s see the chart:
















































































































































































































































































































ISDEX

Stock

Market

component

ticker

capitalization

company

symbol

(millions)

Amazon.com

AMZN

$ 18,233

AOL

AOL

$ 82,190

@Home

ATHM

$ 13,306

AXENT

AXNT

$ 914

Broadcast.com

BCST

$ 2,684

Broadcom

BRCM

$ 5,771

Broadvision

BVSN

$ 1,026

Beyond.com

BYND

$ 730

CDnow

CDNW

$ 301

Checkpoint

CHKPF

$ 1,428

CMGI

CMGI

$ 5,425

Concentric Networks

CNCX

$ 664

CNET

CNET

$ 2,107

Cyberian Outpost

COOL

$ 365

Cisco

CSCO

$ 162,500

CyberCash

CYCH

$ 223

Doubleclick

DCLK

$ 1,864

eBay

EBAY

$ 11,380

Egghead.com

EGGS

$ 431

ETRADE

EGRP

$ 5,376

Earthlink

ELNK

$ 2,029

Exodus

EXDS

$ 1,649

GeoCities

GCTY

$ 3,079

IDT

IDTC

$ 292

Inktomi

INKT

$ 3,197

ISS Group

ISSX

$ 1,023

Lycos

LCOS

$ 4,037

Mindspring

MSPG

$ 2,586

Network Associates

NETA

$ 6,619

Netscape

NSCP

$ 8,032

Network Solutions

NSOL

$ 2,725

N2K

NTKI

$ 187

Open Market

OMKT

$ 466

Onsale

ONSL

$ 662

Open Text

OTEXF

$ 485

PSINet

PSIX

$ 1,872

Preview Travel

PTVL

$ 273

RealNetworks

RNWK

$ 2,097

Security Dynamics

SDTI

$ 782

Infoseek

SEEK

$ 4,346

Security First

 

$ 654

Sportsline USA

SPLN

$ 817

Spyglass

SPYG

$ 167

24/7 Media

TFSM

$ 410

USWeb

USWB

$ 1,569

Vocaltec

VOCLF

$ 135

Verio

VRIO

$ 922

Verisign

VRSN

$ 2,634

Excite

XCIT

$ 5,511

YAHOO

YHOO

$ 30,175

 

TOTAL

$ 406,350

 

AVERAGE

$ 8,127

 

 

 

Microsoft

MSFT

$ 392,200

 

 

 

Percent difference

 

 

ISDEX vs. MSFT

 

4%

data: Market Guide

Between AOL (NYSE:AOL), Amazon.com (NASDAQ:AMZN), eBay (NASDAQ:EBAY), Netscape (NASDAQ:NSCP), and Yahoo (NASDAQ:YHOO), any one of these five companies may someday have the kind of leverage Microsoft enjoys today.

Consolidation looks like it’s creating a mega-power to battle Microsoft. Our belief is that AOL could be the real “next Microsoft” as it works across its AOL online, AOL.com, ICQ instant messaging, and completes its pending merger with Netscape.

AOL’s revenue is expanding into the gorilla stage, and no other Internet company (except Cisco) comes close.

For the six months ended December 1998, AOL’s total revenues were $1.82 billion, up 63%. Net income soared from $64 million to $228 million. We project AOL revenues will exceed $5 billion annually, which is a fraction of Microsoft’s nearly $18 billion annualized revenue. In 3 to 5 years this could be a different story.

Across its various platforms AOL commands an installed user base that begins to rival that of Microsoft, in the 40 million to 50 million user range, although Microsoft reaches about double that with all its applications and OS.

Besides AOL, the 50 companies in ISDEX together account for a combined reach of customers and users that far exceeds that of Microsoft on the Web and on the Internet. These firms have more sway than anything yet to come from Redmond.

Even with Microsoft’s Internet Explorer browser, we think the browser is a commodity, a shell; the value shift has gone from software to the companies that provide the links, services, and scale.

Note the top market cap leaders in ISDEX (those mentioned above) all are service oriented, delivering goods or content. None of them are software companies. Even AOL doesn’t sell its software, it gives it away to sell the service.

This comparison is not a Microsoft-bashing exercise, however, since we also see Microsoft making headway in the Internet space with MSN, Expedia, and CarPoint. It simply demonstrates how these 50 Internet pioneer companies trade on par with just one PC-era born company. It’s worth pondering.

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