The State of the Japanese Net, VIEvery six months, Network Wizards takes an Internet-wide survey on behalf of INTERNIC, the governing body of Internet domain names. This survey provides a moderate guess at the growth of the Internet -- specifically, the number of hosts (or servers) in the various worldwide domains.
by Forest Linton
Internet Market Fever
This month, I'll survey the current landscape of Internet stocks and share some of my favorites. I have separated Internet stocks into four primary categories, listed in chronological order of each category's IPO timing.
Internet service providers AOL -- America OnLine; the world's largest ISP, with over 11 million members CSRV -- CompuServe; recently acquired by AOL ELNK -- Earthlink; a relatively new IPO whose stock has already jumped considerably MSPG -- Mindspring; a new high flyer NETC -- Netcom; the first ISP to go public, in late 1994 PSIX -- PSI Net; went public in 1995, hit a slump, but now looks to be on the rebound Software and technology This group includes technology or transaction enablers: browser software developers, clearinghouses for digital certificates, online banks, electronic commerce software and solutions providers, and so on. These companies represented the 2nd wave of Internet companies going public, and this is now the largest category of Internet-related stocks. I am bullish on DoubleClick, an ad banner distribution and tracking company. Advertising will still be the primary revenue stream on the Internet for 1998 and 1999, and DoubleClick may be in the right place at the right time. I am bearish, though, on electronic commerce protocol providers like Cybercash. CKFR -- Checkfree; a check transaction processor that is moving online CYCH -- Cybercash; a secure Net-payment solution provider DBLK -- DoubleClick; representative of a new breed of service providers OMKT -- Open Market; creator of e-commerce software SFNB -- Security First; one of the first online banks, and the first to go public SPYG -- Spyglass; one of the original browser companies VRSG -- Verisign; joins DBLK in a leading new category of service providers Content and search providers It seems that Internet mania has driven every traditional media company into setting up an obligatory website and publishing their URLs everywhere imaginable. However, there are a few pure Internet players out there. Their primary source of revenue is advertising, but a few have started charging fees for content. CNET is my current favorite, more so for the quality of their content than their bottom line (since losses are still mounting). Pointcast may also be an interesting player but hasn't gone public yet. CNWK -- CNet; operates a TV show, an online news site, and a computer site INDV -- Individual; provides business news MECK -- Mecklermedia; operates Internet World and publishes several Internet magazines NTKI -- N2K; promotes and sells music digitally, in addition to traditional CDs Search engines are hard to classify, because all of them are trying to turn themselves into content companies -- or, more accurately, content aggregators. In the process, they are also seeking a piece of the transaction pie, in the form of partnerships with shopping sites. Yahoo! is not only the most popular search engine, but it is also the busiest site on the Web and has the distinction of being the first search engine to turn a profit (a fact that has propelled its stock price into the stratosphere). Infoseek is the most affordably priced of the others, and analysts cite its low price/access hit ratio as a reason to buy. EXCT -- Excite; very aggressive in setting up content partnerships LCOS -- Lycos; booming, but hasn't fully built up its international properties SEEK -- Infoseek; late to form partnerships with content and transaction companies, but catching up YHOO -- Yahoo!; leads the pack -- is setting the standards bar, and is turning a small profit Shopping and transactions The companies in this category differ from content providers by selling traditional hard goods online. After the order, the book, CD, ticket, or whatever, is mailed to the purchaser's home. This is the most recent category to go public, mainly because the commerce-capable base of online users has only just reached critical mass. Amazon books is the leader in this category, and its stock has gone through the roof lately. None of the travel-only providers has gone public yet, but I have my eyes on one (Internet Travel Network). CDNow recently went public and is still affordable; it is my recommendation. AMZN -- Amazon Books; leads the pack in terms of revenues and stock price CDNW -- CDNow; sells CDs over the Web EGGS -- Egghead; a famous retail chain that has ditched all of its stores and is only selling online EGRP -- E-Trade; a discount stockbroker, facing stiff competition from Schwab ONSL -- Onsale; an online auction house PPOD -- PeaPod; an online grocery delivery service Bullish on Japan I am bullish on companies that have identified Japan early-on as an important market. Not only is it #2 in market size and number of Internet users, but it is still in the early stages of a big Internet boom. Companies who have already established a presence in Japan will be prepared to take advantage of the wave of consumers who are coming online. Most have established subsidiaries as joint ventures with Japanese companies (a smart move). These include AOL (partners: Nikkei, Mitsui), Cybercash (partner: Softbank), DoubleClick (partner: NTT AD), Excite (partner: Dai Nippon), Infoseek (partner: Digital Garage), Pointcast (partner: Trans Cosmos), PSI Net (no partner), VeriSign (no partner), and Yahoo (partner: Softbank). Not for the weak at heart Internet stocks are volatile compared to more traditional industries. This is due in part to the immature nature of the companies, the reality that many are recent IPOs, and the realization that a lot of them are fueled more by hype and vaporware than strong balance sheets.
Investors in Internet stocks are often also active Internet users, and their trading habits add to the volatility. The speed of information dissemination on the Net combined with the ability to trade stocks online has shortened the traditional lag between news release and stock performance. This is both an opportunity and a pitfall -- remember that you invest at our own risk. Forest Linton takes stock of the Internet each month here in The Digital Forest. You can reach him at forest@gol.com.
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