Tuesday, March 12, 1996
MARKET CLOSE
INDEX:
I. Market News: Late Day Rally Erases Big Drop
II. Heroes: America Online, Xylan, Forte, A&P, Life Partners
III. Goats: Symmetricom, Solectron, StrataCom
IV. Investment Perspective: Alex Brown New Media, Day 2 of 5
V. Another Foolish Thing: A Virtual Foolish Book Signing!
MARKET CLOSE
DJIA: 5583.89 +2.89 (+0.05%)
S&P 500: 637.09 -2.93 (-0.46%)
NASDAQ: 1073.05 -7.45 (-0.69%)
MARKET NEWS
How do you spell "stock market"? P-E-N-D-U-L-U-M, that's how. This morning the Dow was down nearly 100 points, but recovered to end the day slightly up. The NASDAQ was also down significantly, but rallied its way back to a more modest loss. While other investors might be checking their blood pressure, Fools know to ignore these short-term swings, as in the long-term, the market is always up.
The biggest news on the market today was America Online, and its many major deals, including a partnership with Microsoft. This comes only one day after yesterday's deal with Netscape. For more details, check our Special Section in the main screen listbox. For a perspective on today's economic news, featuring the January report on wholesale trade sales and inventories, the U.S. trade deficit for fourth quarter of 1995, the February report from the Atlanta Federal Reserve Bank, and weekly retail sale reports, check out MF Merlin's Economic Indicators area in the Evening News screen.
HEROES
America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %>, soaring $7 1/8 to $55 1/2, continued to rocket forward on the heels of yet more major announcements. America Online has agreed to offer Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> Internet Explorer browser to its 5 million-plus customers. America Online will also now be offered on Windows95, and future Microsoft operating systems. Microsoft was down $3/4 to $95 3/4 on the news. Spyglass <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYG)") else Response.Write("(NASDAQ: SPYG)") end if %>, which licenses to Microsoft part of the Explorer software, also stands to benefit from this deal, but the stock was unchanged at 23 1/2 today. America Online also signed a deal today with Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUNW)") else Response.Write("(NASDAQ: SUNW)") end if %> to license Sun's Java programming language and to explore potential collaborations. Sun shares were down $3/8 to $47. America Online, so recently and frequently decried as doomed in the face of threatening new developments by Microsoft, Netscape, Sun, etc., seems to be demonstrating that *it* is the force to be reckoned with!
Today was a red-hot day for some Initial Public Offerings (IPOs). Xylan Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XYLN)") else Response.Write("(NASDAQ: XYLN)") end if %>, a high-band switching equipment maker, made its debut priced at $23 today, and quickly shot up to close at $58 3/8. Forte Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FRTE)") else Response.Write("(NASDAQ: FRTE)") end if %>, specializing in client server software, was priced at $21 per share and ended the day at 38 1/4. Both were underwritten by Morgan Stanley.
GREAT ATLANTIC & PACIFIC TEA COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GAP)") else Response.Write("(NYSE: GAP)") end if %>, better known as A&P Supermarkets, shot up $2 7/8 to $26 1/2 today, after being upgraded to moderate outperform from market perform by Goldman Sachs. Just yesterday, the company reported earnings of $0.67 per share, over four times last year's fourth quarter's numbers, and blowing away analyst expectations of $0.20 per share. CEO James Wood was happy to announce that his company is "back on track".
Shares of life insurance holding company Life Partners Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LPG)") else Response.Write("(NYSE: LPG)") end if %> jumped $4 1/4 to $20 today, when it was announced that it would be acquired for $21 per share. The acquirer is Conseco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNC)") else Response.Write("(NYSE: CNC)") end if %>, a company which owns and operates life insurance companies and provides investment management, administrative and other services. Conseco Chairman Stephen C. Hilbert noted that, "The merger with Life Partners Group is expected to be accretive to Conseco's earnings per share, and added that, "The combined organization will have stronger profitability, more diversified operations and greater financial flexibility than either company now enjoys."
QUICK CUTS: SURVIVAL TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STIQ)") else Response.Write("(NASDAQ: STIQ)") end if %>, a high-tech medical equipment company, leapt up $1 1/2 to $9 1/4 today, after announcing robust earnings growth, particularly in sales to the military. . . HEMLO GOLD MINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HEM)") else Response.Write("(AMEX: HEM)") end if %> agreed to merge with fellow mining concern Battle Mountain Gold <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMG)") else Response.Write("(NYSE: BMG)") end if %> today, sending Hemlo shares up $1 to $13 3/4. . . FINISH LINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FINL)") else Response.Write("(NASDAQ: FINL)") end if %> raced ahead $7/8 to $11 3/8 on an upgrade to buy from market perform by Oppenheimer analyst Bernard Sosnick, who called the company a "fine athletic specialist", cited its low multiple, raised his estimates, and pointed out that the company stands to benefit from the upcoming Olympics. . . SUPERCONDUCTOR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCON)") else Response.Write("(NASDAQ: SCON)") end if %> surprised the market with its earnings today, losing only $0.05 per share, when analysts were expecting a loss of $0.11 per share. This sent the stock up $1 to $8. . . JACK HENRY & ASSOC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: JKHY)") else Response.Write("(NASDAQ: JKHY)") end if %> rose $3 to $24 1/2 today, after announcing that a deal has been signed with Block Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRB)") else Response.Write("(NYSE: HRB)") end if %>, a subsidiary of H&R Block, CompuServe's parent, to provide its over 1,240 banks and financial institutions with home banking products for their customers.
GOATS
Semiconductor producer Symmetricom's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYMM)") else Response.Write("(NASDAQ: SYMM)") end if %> shares dropped $1 to $10 today after the company warned that its third quarter sales and net income would be lower than the previous quarter. Chairman and CEO Dan Rasdal explained that, "The decrease in net sales is presently expected to be primarily due to lower orders and customer rescheduling of backlog for integrated circuits. . . much of the order shortfall is for product used in personal computers." He defended their results by adding, as if we haven't noticed, that, "A number of other semiconductor producers are experiencing similar slowdowns."
Solectron Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> announced its 1996 second quarter earnings yesterday, featuring sales up 39% and net income up 53% from the last second quarter. Net income was $0.52 per share. Pretty impressive, eh? So why did shares drop $2 5/8 to $43 today? Because analysts were expecting $0.56 per share from the global supplier of pre-manufacturing, manufacturing, and post-manufacturing services to electronics OEMs.
Analysts expressing concern about StrataCom's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STRM)") else Response.Write("(NASDAQ: STRM)") end if %> ability to meet revenue expectations drove the shares down $2 7/8 to $33 5/8 today. Some cited decreasing margins caused by an ATM switch transition, while others pointed to increased competition from Cascade Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCC)") else Response.Write("(NASDAQ: CSCC)") end if %> and Northern Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NTL)") else Response.Write("(NYSE: NTL)") end if %>. Nutmeg Securities analyst Andy Schopick said he expected StrataCom's growth to be more moderate in the near future and did not see the stock as attractive at current levels.
QUICK CUTS: Shares of Israeli firm VocalTec <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VOCLF)") else Response.Write("(NASDAQ: VOCLF)") end if %> dropped $1 7/8 to $13 1/8 today, after the company announced that it would provide Internet phone services to CompuServe users, enabling them to carry on international conversations for the cost of a local online connection. Perhaps the market was disappointed that the deal wasn't with America Online? . . . APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %> dropped $1 3/8 to $32 5/8 after being downgraded yesterday from buy to long-term attractive by Robertson Stephens analyst Dan Kleskan.
INVESTMENT PERSPECTIVE: Alex Brown, Day Two
Let's start with a look at America Online:
"We are fortunate to be drowning in a sea of core competencies," President of AOL Services Ted Leonsis told the lunch crowd at the Alex Brown New Media conference today, capping a morning where America Online has virtually dominated all discussion.
America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %>, up $7 1/8 to $55 1/2 on enormous volume, made a series of announcements early this morning that capped a three-day orgy of press releases. Confounding the conventional wisdom, which for the first time included denizens of the Fool newsroom, America Online has agreed to partner with Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %>. The terms of the deal call for America Online to offer Microsoft's Internet Explorer to its proprietary AOL users, regulating the Netscape browser to be the browser of choice for AOL's GNN-brand Internet service business. In return for this concession, America Online will be pre-installed on Windows '95 and any operating systems to follow out of Redmond, Washington.
"I apologize for anything I said about Vietnam," Leonsis quipped before delineating the terms of the deal between Microsoft and America Online. Leonsis then launched into an hour-long tour de force, recapping the news hurricane that America Online has unleashed on an unsuspecting market in the last few days. These announcements include:
o AT&T's WorldNet Service will offer AOL;
o The Netscape browser will become the browser for GNN;
o Microsoft's Spyglass-licensed Internet Explorer will be the browser for AOL;
o AOL will get a premium spot on Netscape's Web page
o Microsoft will preload AOL onto its Windows '95 operating system;
o Apple Computer will preload AOL onto its Macintosh operating system;
o Sun Microsystems will license its Java language to AOL;
o Apple Computer will assist AOL in upgrading services for the Macintosh;
o Hewlett Packard and AOL's ANS subsidiary will develop & market intra-nets;
o Newsweek will replace Time on AOL;
o Computer magazine publisher Ziff-Davis is coming online with AOL;
o The new Greenhouse project Parent Soup launched;
The competitive landscape for America Online has been completely changed in the past 48 hours as perceived competitors have suddenly become partners. The mood at the Alex Brown conference was upbeat and aggressive from employees of America Online present for the festivities.
Among the juicier tidbits of information doled out at the conference was the news that daily usage has increased from one million hours in December to 1.5 million currently, hitting 1.28 million during the blizzard of '96 in January. America Online, which has posted revenues in its first two quarters that surpass its entire previous fiscal year by $50 million, expects to have more than 6 million subscribers on board when it reports its March quarter. Likening the growth curve of America Online to Home Box Office during 1972 to 1979, AOL spokesman Len Leader emphasized that the market America Online is attempting to penetrate has a potential to reach 30 to 35 million.
As for the 'threat' of the Web, Leader simply offered a few facts: "AOL is the largest Interent provider, which counts for 16% of total usage. America Online accounts for 1.3 million hits on the Web every day." While last Thursday AT&T's entry into the Internet service business signaled the end to proprietary online services, today the fortunes of America Online have never been higher.
And now. . . on to the rest of the conference!
Investment conferences are designed by brokerages as premium events for their institutional client base. By gathering together the movers and shakers in a particular industry and extending invitations almost exclusively to their best clients, full service brokerages can offer a premium service that attracts buyers and sellers of securities to do business with them.
The quality of information that is dispersed by companies at these conferences is tremendous and completely blows away what is available in the investor packets that small-time folks like you and me have available to them. Companies also tend to stockpile big announcements until investment conferences, so that they can get the news out in a controlled way to entities that account for the vast majority of their outstanding shares.
Today's session at Alex Brown was completely dominated by America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %>, as the company had saved for today its agreement with former arch-rival Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> to add Internet Explorer to its online service and to have itself bundled on Windows '95. It becomes clear why yesterday's press release regarding the Netscape <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NSCP)") else Response.Write("(NASDAQ: NSCP)") end if %> deal was so darn vague---they knew that they were holding today's Microsoft event to create a big splash. America Online is the king of managing these sorts of events that have become more and more important as institutionally-managed money has come to dominate the investment world. For instance, although mutual funds only hold 15% of the stock in the world, they account for about 80% of the daily transactional volume---they are what make stocks move on a daily basis and they keep full service brokerages in business.
Today's session also saw defiant presentations from BBN Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBN)") else Response.Write("(NYSE: BBN)") end if %>, UUNet Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UUNT)") else Response.Write("(NASDAQ: UUNT)") end if %> and Netcom On-line Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETC)") else Response.Write("(NASDAQ: NETC)") end if %>. The most interesting part about this segment is how clearly the differentiation between these three companies was made in their respective presentations. BBN Corp., which presented at the sparsely-attended 8:00 AM PST time slot, regaled institutional investors and Alex Brown brokers with a story about value-added network services through the combination of its BBN Planet Internet access business, BBN Systems and Technologies networking side and its BBN Domain software subsidiary. BBN is a company that has remade itself in recent months and is focusing on a story about a new management team and a new corporate structure that will drive it forward. Having dabbled in the consumer market, BBN Planet is now pointing itself towards the lucrative business market that AT&T and MCI Communications have found so hard to penetrate, leaving the consumer market to its partner AT&T.
Netcom, by constrast, told a story about a company focused purely on the consumer market. They are positioning themselves to offer Internet access to the consumer and are emphasizing the fact that they are not involved with the business market at all. Although this was supposed to be a soothing recapitulation, this commentator left the room feeling that Netcom's prospects are pretty grim. When asked if they were contemplating an AT&T-America Online type of arrangement, the company spokesperson answered, "Not at this time." Competing in a commodity access business without much to build a brand name with, they have a few hurdles to clear.
UUNet Technologies was giving a particularly hard sell in advance of their upcoming secondary offering. Emphasizing their relationship with Microsoft, their worldwide network and stating quite flatly that they believe their network is bigger and better than anyone else's and will only get better after they spend $150-200 million to buy some undersea fiber optic cable, UUNet said that the real money is in Internet access catering to businesses. Business connections, which require 30 to 45 days to set up, have incredibly low churn and grow as customers notch up the amount of bandwidth they are consuming. "Most of our customers have moved up to leased lines or fraction T-1s", said the company president and CEO during his presentation today. "Our revenues per customer continue to increase as a result."
Taking out the effect of last quarter's pooling of interest with Unipalm and EU Germany, UUNet has been profitable for the last two quarters---the only Internet service provider (ISP) in the business to achieve that. Having taken out the two biggest players in the European Internet market and predicting that international growth will outpace North American growth starting next year, UUNet stated bluntly that it is the only ISP with worldwide infrastructure, able to offer businesses a full package. With Microsoft funding the development of its North American infrastructure and paying UUNet to speed up the five-year contract the two companies had negotiated last year, UUNet was raring to take on all comers in its dynamic presentation.
Today I focused on Internet access and service companies. Tomorrow I will discuss more of the same from the second half of today's presentation and Thursday and Friday I will cover the software and content companies.
Byline: Randy Befumo (MF Templar)