Wednesday, March 13, 1996
MARKET CLOSE

INDEX:

I. Market News: A Good Day For Technology Stocks
II. Heroes: Brooke Group, Spyglass, US Robotics, Petco
III. Goats: PC Quote, Employee Solutions, Casino Data Systems
IV. Investment Perspective: Alex Brown New Media, Day 3
V. Another Foolish Thing

MARKET CLOSE

DJIA: 5568.72 -15.17 (-0.27%)
S&P 500: 638.55 +1.46 (+0.23%)
NASDAQ: 1088.64 +15 59 (+1.45%)

MARKET NEWS

For a change, the Dow was relatively calm today, while the NASDAQ raced ahead. Perhaps serving as a catalyst was the February semiconductor book-to-bill number, which along with other data, pointed to stabilization in the industry. For a lot more information and perspective on the overly-revered book-to-bill, see our Special Section in the main screen listbox. Another Special Section features America Online and its recently-announced partnerships.

Also of interest is MF Merlin's take on the day's economic developments. You'll find his Economic Indicators area in the Evening News screen, and today he tackles the Federal Reserve's "Beige Book" report on the status of the economy, as well as Federal Reserve Governor Janet Yellen's speech before the National Association of Business Economists. And for those of you who enjoyed MF Templar's series on The Digital World, stay tuned. . . Technophrenia is coming!

HEROES

Liggett Group, a unit of Brooke Group Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGL)") else Response.Write("(NYSE: BGL)") end if %>, agreed to settle its part of several massive lawsuits facing the tobacco industry. This sent shares upward $1 1/2 to $9 7/8 as investors expressed relief at the end of the uncertainty caused by the pending litigation. Liggett will contribute 5% of its pretax income to smoking cessation programs, and will share in the burden of smoking-related medical expenses borne by State governments, paying out as much as 2-7% of its pretax income. The deal includes an escape clause, should the remaining tobacco companies win in court. It is speculated that Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> ended the day down $3 3/8 to $98, and RJR Nabisco Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> was down $1/2 to $34. RJR Nabisco retorted that they see this move as "an irresponsible and reckless ploy" by Liggett's Bennet LeBow to influence RJR Nabisco shareholders to spin off their tobacco business.

Spyglass <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYG)") else Response.Write("(NASDAQ: SPYG)") end if %> shares hopped up $2 1/2 to $26 as investors began to understand the implications of yesterday's partnership between America Online and Microsoft. Part of the deal said that America Online would provide its 5 million members with Microsoft's Internet Explorer browser. What does this have to do with Spyglass? Well, Microsoft licenses the underlying software in the product from Spyglass. So Spyglass now expects to earn $2 million in royalties from the deal. Chief financial officer (CFO) Gary Vilchick noted that the company expects most of this revenue in 1997, and plans to become more aggressive in development and marketing. "We will not underinvest in this market," he said.

US Robotics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> enjoyed a surge of $8 3/8 to $125 today, riding on the coat tails of recent deals between America Online, Microsoft, and AT&T. Analysts point to increased demand for modems and other US Robotics products, as these agreements are likely to significantly increase the online consumer base as well as online usage.

Shares of the retail chain Petco Animal Supplies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PETC)") else Response.Write("(NASDAQ: PETC)") end if %> jumped $5 3/4 to $41 1/4, for several reasons. The company announced record earnings, beating estimates by $0.02, and featuring a 42% increase in net income and a 71% increase in sales. In response, PaineWebber analyst Mark Hanratty upgraded the company to buy from attractive and increased his estimates. The company also announced today that it had purchased the privately-held eight-store P.T. Moran pet supplies chain. It expects the acquisition to be accretive to net earnings. PetsMart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PETM)") else Response.Write("(NASDAQ: PETM)") end if %>, another pet-related retail chain, gained $1 3/16 to close at $38 15/16.

QUICK CUTS: IDEC PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IDPH)") else Response.Write("(NASDAQ: IDPH)") end if %> soared $4 7/16 to $21 1/8 after the company reported very positive updated results of ongoing anti-Lymphoma treatments at a Cancer Symposium. . . GETTY PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTY)") else Response.Write("(NYSE: GTY)") end if %> jumped $1 1/4 to $15 when it announced that it will spin off its petroleum marketing business tax-free to shareholders. . . WABAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WBN)") else Response.Write("(NYSE: WBN)") end if %> rose $1 1/2 to $26 3/8 when Prudential Securities added the company to its oxymoronic "Single Best Idea Select List". Also added was Boise Cascade <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCC)") else Response.Write("(NYSE: BCC)") end if %> and removed from the list were Bristol-Myers Squibb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMY)") else Response.Write("(NYSE: BMY)") end if %> and Abbott Labs <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABT)") else Response.Write("(NYSE: ABT)") end if %>. . . Shares of software publisher GT INTERACTIVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GTIS)") else Response.Write("(NASDAQ: GTIS)") end if %> were up $1 13/16 to $12 7/8 after the company debuted its new Kidz Corner line yesterday, featuring the "Just Me and My Dad" CD-ROM authored by the popular Mercer Mayer. . . UNITED VIDEO SATELLITE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UVSGA)") else Response.Write("(NASDAQ: UVSGA)") end if %> beamed ahead $2 1/2 to $21 1/2 after announcing a joint venture with Tele-Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCOMA)") else Response.Write("(NASDAQ: TCOMA)") end if %> division Liberty Media---which will effectively become the nation's largest provider of programming to C-band satellite customers.

GOATS

PC Quote <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PQT)") else Response.Write("(AMEX: PQT)") end if %> reported record earnings today, but they were not impressive enough to sway investors, who quoted the shares down $1 to $11. Although revenue for the year ended December 31, 1995 only increased 3.8%, net income increased 395%, to $0.21 per share. Chairman Louis Morgan, noted that, "We expect sales of our

Windows-based and network product to be strong contributors to

our growth in the coming year." This beleaguered provider of online financial data and market quotes has seen its shares go from $1 1/16 to $27 1/2 to $11 in the past 52 weeks---quite a ride!

Barely a week after reporting a doubling of revenues in the past year, as well as a ten-fold increase in net income, Employee Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ESOL)") else Response.Write("(NASDAQ: ESOL)") end if %> is dealing with some less-favorable press. Shares fell $3 to $26 5/8 today, due to rumors that the company's recent earnings were improperly inflated. Short-sellers are blamed for the rumor-mongering, and CFO Morrie Aaron denied the claim. Another cause of corporate grief today is a minor lawsuit brought against the firm. Employee Solutions said it "believes the litigation is entirely without merit and appears to be driven primarily by personal motivations."

QUICK CUTS: Six executives at CASINO DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSDS)") else Response.Write("(NASDAQ: CSDS)") end if %> left the company abruptly today, returning to their former employer, International Game Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGT)") else Response.Write("(NYSE: IGT)") end if %>. Few details were revealed, but they had only joined the firm in December. Casino Data shares dropped $3 3/4 to $11 5/8, while IGT shareholders re-enacted the Biblical Prodigal Son story, sending shares up $3/4 to $14 1/8. . . Shares of disk and tape drive component maker READ-RITE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RDRT)") else Response.Write("(NASDAQ: RDRT)") end if %> were down $2 1/4 to $17 3/8 today, on no apparent news other than continued uncertainty about growth prospects for the computer industry. . . Volatile Internet stock CYBERCASH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYCH)") else Response.Write("(NASDAQ: CYCH)") end if %> saw its shares rattled down $2 1/2 to $36 3/4 today.

INVESTMENT PERSPECTIVE:
The Alex Brown New Media Conf.--Part 3

Today was the day of the cellular phone. Right before the first session this morning a bevy of brokers, institutional investors and portfolio managers were all chatting it up on their cellular phones, communicating with the home office on whether to buy, sell or hold various equities. The world of the institutional investor is a particularly strange one, given the buzz I heard about attending the Gartner Group trade show in two weeks and another industry conference at about the same time. To wander the earth forever a nomad, attending grueling conference after conference, would strike most as a punishment reserved for traitors in the ninth circle of Hell.

I saw the Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LCOS)") else Response.Write("(NASDAQ: LCOS)") end if %>, Verity <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VRTY)") else Response.Write("(NASDAQ: VRTY)") end if %> and America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> presentations last night and I want to provide a brief synopsis here before launching into a larger discussion on the value of "branding."

Lycos was the company I was most skeptical of coming to this conference. They are currently registering for an initial public offering through Hambrecht & Quist, Alex Brown, and Wessels Arnold & Henderson for 3.0 million shares. The initial pricing range being talked about is $10 to $12 per share, making this web information service a $30 to $40 million company right off the bat. Head Fool Tom Gardner and I joked about this early Tuesday, speculating on what the Motley Fool <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FOOL or NASDAQ: SHRT)") else Response.Write("(NASDAQ: FOOL or NASDAQ: SHRT)") end if %> might fetch.

Confronted with the management of Lycos, I had to retrench a little bit. The company, which was bought by CMG Information Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CMGI)") else Response.Write("(NASDAQ: CMGI)") end if %> a few months back, has what amounts to the only integrated package of web information offerings out there. Their main Lycos service is the biggest index of web content going and they plan to enhance this by adding sound-and-graphics indexing sometime this year. PC Computing ranked Lycos's main service number one in both number of hits generated and accuracy. Their independent Point write-ups that detail the best 5% of all Web sites are a nice addition to this franchise, making them stand out from their competition. The new "a2z" category service, designed like Yahoo!, is a third differentiation of the same core product, grouping Web content by certain categories to enhance browsing.

Lycos delivers millions of "eyeballs" to Web sites and makes its money off of the high-impact advertising they put on top of their services. Targeted advertising appears at the top of the page whenever you enter a search, allowing advertisers to customize what audience they are hitting. The interactive advertising can also be adjusted "on the fly," unlike print ads that cannot be retracted. Lycos sells its ad space for $20-50,000 per million "impressions" and has contract lengths that range from 3 to 12 months. The company intends to recognize this revenue by amortizing it over the length of the contract.

Another source of revenues for Lycos is lending its brand name to a publishing house that will produce Web-related books. This is what left me scratching my head---does the Lycos brand really mean that much? The only weakness I can find is that a2z could be theoretically superseded by an AOL approach that integrates proprietary content with Web content. But given AOL's spotty execution here, this is not really an issue today.

Verity is another company that stressed the value of its brand-name. The company develops tools that allow other companies to index, publish, search and personalize information in a network, whether it be an enterprise or Internet affair. They have taken a Microsoft approach to marketing their "topic" product, stating that their strategy is "topic everywhere." Their product differentiation is to offer topicTOOLS, topicSEARCH, topicACCESS, topicAGENT and topicAPPS, which are add-ons to the main program.

The company does business with 700 of the Fortune 1000 and is on 200+ of their Web sites. They are focusing on groupware extensions for existing products, launching with Microsoft's Exchange groupware, and enhancing their product for the next iteration of the Lotus Notes groupware. Their revenue mix is evenly split between enterprises and the Internet right now, suggesting that Internet business has grown tremendously.

Verity's approach has been to get their foot in the door everywhere cheaply, as opposed to their main competitor Fulcrum, which has been growing revenues with higher price points at the expense of market share. Verity's belief is that their brand name will count for something in the Digital World---almost a uniform belief among these companies. Dismissing their other competition as irrelevant, Verity targets 15-20% operating margins in the next few years after producing a loss in recent quarters.

Brand name is something that can be incredibly important in a business. However, it is not necessarily the be-all and end-all. Xerox, which has the top brand name in copying, has not done a heck of a lot with it. By contrast, Kleenex, which is the main brand name in tissues, has taken over the world. America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> has talked a lot about branding as well---in fact, it is fair to say that the company is consumed by it.

What branding does is allows you to sell your product at higher price points and still hold incredible market share. Intuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTU)") else Response.Write("(NASDAQ: INTU)") end if %> does this with their tax product and their personal finance product. Despite the fact that Kiplinger and others have come into Intuit's market at a lower price points, Intuit has still gained share. Can branding work for Lycos and Verity? For America Online? Well, AOL has taken its consumer service and started packaging private AOL areas for companies like Merrill Lynch, Harvard Business School, MIT's Business School and many others, billing the companies separately for usage on their area rather than billing the customers. These private areas are only possible because of America Online's brand name---no one goes to Prodigy for this stuff.

I plan to comment further on branding in tomorrow night's installment. Stay tuned!

ANOTHER FOOLISH THING: The Weekly Fool on Paper

For those among you who prefer paper and staples to chips and bytes, The Weekly Fool is now available in a paper format. Ideal for Fools on the run, The Weekly Fool is a compilation of the week's happenings. If you don't have time to scour every corner of Fooldom, yet you want to stay in the loop---sign up! This paper version is also an ideal gift for your friends or relatives who have Foolish inclinations but no Foolish technology. Share this unique newsletter with them, and help them learn about sound investing principles and strategies as well as potential stock picks. To subscribe, for more information, or for a sample copy, contact MF Numbers ([email protected] or 800-717-0701).

YET ANOTHER FOOLISH THING: Fools on the Radio!

That's right! David and Tom Gardner are bringing their Foolish outlook to the airwaves this weekend. Tune in to the Monitor Radio's Weekend Edition---stations and times are listed in the Radio page.

Byline: Randy Befumo (MF Templar)