Net Boom Defies Stock Conventions
Eric Ellis San Francisco

07/08/1998

There's a New Boom under way in America's New Economy and a new tradition-flouting market hero to go with it.
Silicon Valley's booming internet stocks leapt by double figures yesterday in the latest convention-defying rally, providing further evidence that a new generation of Gordon "Geekos" - more likely to have braces on their teeth than over a Brooks Brothers shirt - are reshaping Wall Street.

The stock valuations of these new darlings of the market, such as Yahoo!, Lycos, Excite and Amazon, defy conventional analysis. Many are yet to post any significant revenues, let alone profits.
The search engine Yahoo! led yesterday's market charge, its shares jumping by 15 per cent to top $US200 ($324) for the first time. At Christmas 1996, they were just $US10.

The online bookseller Amazon soared 12 per cent to $US139.50. Its year low is $US9.56.

Australian investors have also caught internet fever, after New York's NASDAQ market pushed OzEmail's American depository receipts up 5 per cent to $US26.69, well ahead of the stock's 52-week low of just $5.87.

Shares in OzEmail leapt 36cents on the local sharemarket yesterday to hit a new high of $4.11, revaluing the company on the strength of its potentially valuable search site and content business as well as its core internet access service.

Yesterday's New York market rally - which saw every major internet company except Netscape shoot up by double-figure percentages - was prompted simply by the news that one of them, the search engine group Lycos, would make a two-for-one stock split. That meant that Lycos shares would stop being $US80 or $US100 by the end of the day and become just $US40 to $US50, enabling even more investors to get on board at more accessible prices.

Lycos's major investor, the Boston-based CMGI Group, split its stock earlier this year at around $US90 (its year low was $US6.62) and already the shares are trading around that price again.

The same goes for Amazon, which recently split, and inevitably speculation of a stock-split has spread to market darling Yahoo!

By the measure of its fellow members of the internet sector, perhaps a four-for-one split is in store for Yahoo! at its $US200 price.

The noticeable absentee from yesterday's market flurry was the internet's grandfather stock, Netscape, which lost about 6 per cent.

But that was after a near 80 per cent rally last week from $US25 to $US44, fuelled by speculation about a possible takeover by a big mainstream telecommunications or media company, such as Mr Rupert Murdoch's News Corp.

The soaring valuations of internet stocks are defying conventional analysis based on earnings and other certainties of the old economy.

Indeed, it seems the key to instant wealth in Silicon Valley these days is to hire a slick public relations firm full of energetic 20-year-olds, parade a pimply college graduate in thick glasses, devise a groovy name and announce your reinvention as an internet company. Once promoted, you can then rely on pragmatic market analysts keen to establish reputations in the New Economy to come up with novel ways of rationalising your soaring stock price.

April saw the reinvention of the notorious K-Tel as an internet company, simply by announcing plans to sell its cheesy compilations online. Its stock rose eight-fold on the news, but at least K-Tel had experienced profitability, albeit in a more conventional way by actually earning it.

And yesterday it was the turn of a Texas company that once made sausage skins and fishmeal, which was founded by former US president George Bush as an 1950s oil explorer and goes by the revolutionary name of Zapata. Investors drove Zapata shares up 115 per cent.

Netscape provides another test case of pragmatic re-positioning. As Microsoft shares propelled Bill Gates to a Croesian $US50 billion fortune, Netscape has languished in the teens and low 20s for much of the past year, a quarter of its historic high.

Never mind that Netscape still had more than 50 per cent of the browser market and that it remains the world's second most visited website after Yahoo!. Netscape needs the Justice Department to bail it out, so the argument went.

And then someone somewhere decided that Netscape's glass wasn't half empty, it was actually half full, getting many more hits, or exposure to wealthy consumers, than market darlings Infoseek, Lycos, and Excite.

Netscape now reckons itself a portal company and thus is beginning to be assessed in a similar way to the other search engine companies.

Netscape itself rather skilfully said it was in talks with CBS, Disney, News Corp's Fox and NBC to develop its Netcenter site into a media centre.

Still, amid the hype there are some voices sounding a note of caution. The Bahamas-based emerging markets guru for Templeton Investments, Mr Mark Holowesko, said this week that it was just as easy today to lose your money on internet stocks as it was in Indonesia.

Mr Holowesko should know. He and the ubiquitous Mark Mobius placed big bets on Hong Kong's Peregrine Investment Holdings, which crashed earlier this year thanks to its exposure to a dodgy Jakarta taxi company.