Net Value
One of the factors driving the current Net stock prices and valuations into orbit is a simple supply versus demand equation, as large numbers of investors chase a small amount of available shares. Take the for instance, the volatile, but extremely well-performing shares of Red Hat Inc. (RHAT) and FreeMarkets Inc. (FMKT). The stocks have risen 1,535 and 400 percent from their respective $14 and $48 offering prices. Red Hat has 68.8 million shares outstanding, but only 6 million, or 8.7 percent are floating. FreeMarkets has 34 million shares outstanding, but only 3.6 million shares, or 10.6 percent are floating. Such small floats have guaranteed Internet stocks huge upswings as demand for shares in Net companies easily out-strips supply. Small floats also give a lot of power to the hyperactive day traders and often spell headaches for short-sellers who can easily be "squeezed" with so few shares on the table.
But float is only part of the story. The real issue is the unprecedented growth of the Internet industry and its companies. Actions speak louder than words, and numbers are a result of actions, so we'll let them do the talking. The following is a listing of third quarter results from leading Internet companies. With fourth quarter numbers just around the corner, the following results should establish a baseline for investor expectations.
Priceline.com (PCLN) reported Q3:99 revenues of $152 million versus $9.2 million in revenues for Q3:98, signifying revenue growth of more than 1,500%.
Amazon.com Inc. (AMZN) reported Q3:99 revenues of $356 million, up 131% from last year's $154 million third quarter revenue. AMZN reported 4Q sales of $650 million -- more than in all of 1998.
Ariba (ARBA) reported a significant surge in sales during its fourth quarter. Sales grew 266% to $17.1 million. Ariba generated $45.4 million in revenue for the year, up 443% from last year.
internet.com (INTM)(the publisher of this site) reported Q3:99 revenues of $4.1 million versus $973,000 in revenues for Q3:98, an increase of 323%. Revenues for the nine months ended September 30, 1999 were $8.6 million as compared to nine-month revenues for 1998 of $2.8 million, an increase of 210%.
Homestore.com (HOMS) reported Q3:99 revenues of $18.6 million versus $4.9 million in revenues for Q3:98, a revenue surge of 280%.
CBS Marketwatch.com (MKTW) reported that revenues rose 287% in Q3:99. Revenues climbed to $7 million from $1.8 million in last year's third quarter. MarketWatch posted a pro forma net loss of $0.50 per share. First Call estimates called for a loss of $0.64 per share.
BackWeb Technologies (BWEB) announced revenues for Q3:99 increased 156% to $6.2 million, from $2.4 million in Q3:98.
BroadVision (BVSN) reported Q3:99 revenues of $29.8 million, up 122% over Q3:98 revenues of $13.4 million.
Excite@Home (ATHM) reported revenues of $113 million for Q3:99 compared to revenues of $58 million in Q3:98, an increase of 95%. Cable modem subscribers at the end of Q3:99 totaled 840,000, up 35% over Q2:99, and up almost 400% when compared to Q3:98.
This unprecedented growth is what separates "Net stocks" from "the rest" stocks. What other industry can claim this kind of explosive revenue growth? That being said, Reporter@Large encourages investors to 1) acknowledge that Internet mania may very well be a bubble, 2) understand the contributing factors/metrics, but 3) realize that the Internet stock "bubble" is different than all bubbles ever experienced or seen in the past. In the early 1990s we experienced the biotechnology craze, where biotech stocks sailed to incredibly high prices and valuations. The companies behind these stocks were going to change the face of the medicine and agricultural industries. A very ambitious, worthy and profitable goal, but if successful, these companies would only be reshaping and transforming two industries.
The Internet is different because it stands to affect every person, business, and industry across the globe. Reporter@Large simply doesn't believe concerns over the lofty valuations alone will bring Internet stocks back down to earth. Investors should instead be on the lookout for: 1) changes in the supply vs. demand equation. The flooding of IPOs to market, and companies increasingly double dipping for funds (secondary offerings), will dramatically increase the amount of Internet stocks and shares in individual companies available to Internet stock investors, 2) a slowdown in the growth drivers. Any slowdown in the percentage growths of traffic online, total advertising dollars spent and total e-commerce dollars spent, could adversely affect stocks momentum and 3) "earnings" growth. Any flattening of growth or missed estimates could spell disaster for a stock, its sector, and/or the industry as a whole.
Amgen (AMGN) has been one of the leading biotechnology companies. After the biotech bubble burst, Amgen's stock price dropped 50% off its high in just one month. Yet today Amgen trades at more than three times the price of its "bubble" high. Many weaker companies in the industry have since disappeared. Amgen is proof that holding the highest quality stocks in an Industry at any point in time can be a rewarding proposition.
Net Value for Investors means picking sector leaders that will continue building mind-share and market-share, as well as growing their earnings quarter over quarter and year over year.
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