Deja vu! Remember last month, when the government reported lower unemployment and the market plunged? Well, it happened again. Today the Fool offers a detailed Special Section on why good news for the economy can mean bad news for the market. Just click on the entry in the listbox to the right entitled "Downer jobs Report."
Rexall Sundown <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RXSD)") else Response.Write("(NASDAQ: RXSD)") end if %> split 3-for-2 and announced a sweet deal to offer their vitamins through the 2000 Wal-Mart outlets, causing mass confusion for Data Broadcasting's quotes today on America Online. For the record, Rexall closed up $5 to $25 1/4 after the split and not the $16 1/8 that you see on your America Online quote screen. The deal with Wal-Mart has massive potential, but could all of that have been priced into the shares today? Are people fed up with Nutrition For Life's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NFLI)") else Response.Write("(NASDAQ: NFLI)") end if %> legal problems, fleeing to Rexall as a companion to General Nutrition <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GNCI)") else Response.Write("(NASDAQ: GNCI)") end if %> in their Healthfolios?
Optimism about the book-to-bill ratio (postponed until tomorrow) is behind the rally of a number of stocks today. Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> rose $2 5/8 to $33 5/8 as investors positioned themselves for the book-to-bill potentially coming in above consensus. Anyone who read Technophrenia 1: Micron, a Moral Fable understands that we here in the Fool News room think that this is a company whose products are soon to be obsolete and that has failed to invest in technology even though many call it a "technology" company. International Rectifier <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IRF)") else Response.Write("(NYSE: IRF)") end if %>, up $1 1/8 to $20 1/4, Trident Micro <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TRID)") else Response.Write("(NASDAQ: TRID)") end if %> soaring $1 5/8 to $14 5/8 and LSI Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LSI)") else Response.Write("(NYSE: LSI)") end if %> rising $2 1/8 to $30 3/4 showed promise as well.
Gotta admit, we had flash-backs to last summer during most of the day, as names like Gateway 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GATE)") else Response.Write("(NASDAQ: GATE)") end if %> powered ahead $3 3/4 to $33 3/4. Apparently Lehman Brothers put out the word that Gateway could beat consensus estimates by $0.09 to $0.18 EPS, as we detailed in our special Mid-Day News today (available in the listbox to the right of the News). Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> joined in, surging $2 3/8 to $40 on no news that I could find. And as all speculators are drawn to a name like Micron, Micron Electronic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MUEI)") else Response.Write("(NASDAQ: MUEI)") end if %> could not be stopped either, closing up $1 1/8 to 11 1/8.
QUICK TAKES: Anticipation about earnings in the face of a looming book-to-bill ratio sent shares of ALTERA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALTR)") else Response.Write("(NASDAQ: ALTR)") end if %> up $5 1/8 to $61 3/4. . . Rising $1 5/8 to $11 1/4, Business Week says METATEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: META)") else Response.Write("(NASDAQ: META)") end if %> is a hidden play on the Internet, as it is producing and distributing CompuServe's WOW! CDs. . . Semiconductor equipment manufacturer KLA INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KLAC)") else Response.Write("(NASDAQ: KLAC)") end if %> rose $2 1/4 to $24 7/8 as it reports on Friday. . . FOXMEYER HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FOX)") else Response.Write("(NYSE: FOX)") end if %> rose $1 1/2 to $19 1/2 after Dan Dorfman said the sale of their pharmaceutical distributor is still possible.
Northeast Utilities <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NU)") else Response.Write("(NYSE: NU)") end if %> went nuclear today, dropping $2 5/8 to $17 after the Nuclear Regulatory Commission (NRC) found "significant mechanical problems" at one of its nuclear plants. The government agency threatened to yank Northeast's license to run the plant as a result, sparking a meltdown in the shares. Not exactly glowing news.
Vista 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VIST)") else Response.Write("(NASDAQ: VIST)") end if %> appears dead-set on returning to the penny status whence it came not too long ago. The stock got crunched for $2 13/16 to $3 15/16 after the Chairman and Chief Executive Officer (CEO) Richard Smyth announced he would take a leave of absence pending an audit into accounting irregularities. This is on top of the company's revelation last week that it would lose money this year after telling everyone it would make money.
Informix <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IFMX)") else Response.Write("(NASDAQ: IFMX)") end if %> was thrashed for $7 1/8, closing at $18 3/8 after it had the audacity to give a profit warning. Morgan Stanley was quick to downgrade the database software giant after they stated they saw first quarter net somewhere between $0.07 to $0.10 EPS versus $0.14 EPS a year ago. Anyone who remembers the meltdown of Sybase <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYBS)") else Response.Write("(NASDAQ: SYBS)") end if %>, which got clobbered last week when it missed its numbers, remembers that all of Sybase's problems were from selling out the channel with long-term contracts. Oracle <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORCL)") else Response.Write("(NASDAQ: ORCL)") end if %>, down $2 1/4 to $43 1/4, did the same thing three quarters ago, explaining today's selloff.
QUICK CUTS: Will it never end? The Internet catalog companies continued their freefall as Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XCIT)") else Response.Write("(NASDAQ: XCIT)") end if %> lost $4 5/8 to $15 3/8. . . Down $1 1/4 to $5, OPEN ENVIRONMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OPEN)") else Response.Write("(NASDAQ: OPEN)") end if %> saw its CEO and president resign today after the company reported first quarter revenues would be below expectations. . . PSINET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PSIX)") else Response.Write("(NASDAQ: PSIX)") end if %> needs cash by 1996, came the desperate cry today as the stock lost $1 1/8 to $8 1/4. . . Firewall concern HARRIS COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NHWK)") else Response.Write("(NASDAQ: NHWK)") end if %> took a breather today, down $1 7/8 after $14 3/8 after last week's 3-for-1 split.
INVESTMENT PERSPECTIVE:
Technophrenia 9 - Content Aggregators and Data Services; Postscript
I. Content Aggregators
What is America Online? The apocryphal story about twelve philosophers contemplating the true nature of America Online for twelve days and coming up with thirteen different answers has a ring of truth to it. With a little more than 15% of the outstanding shares in the stock currently sold "short", meaning that market wizards are out ready to profit if America Online's stock falls, there is definitely disagreement as to what America Online is really about.
An online service provider (AOL) and Internet service provider (GNN) owning a substantial high-speed network (AOLNet) along with a subsidiary (ANS) focused on building out and maintaining that very network along with hundreds of others, it is difficult to pigeonhole the company in the conventional lexicon of the Street. Just as Iomega has defied standard expectations by being the world's first company to build a defensible brand in storage technology as well as a significant technological edge, America Online has created a new category, allowing many investors to profit off the backs of a thousand stricken short-sellers. What gives?
Conventional categories that place the "technology sector" at the top of the pile view America Online from a PC-centric view of the world. As the company delivers a service to individual end users, America Online is slapped into the catch-all "computer services" category and things proceed from there. The reality is that America Online has much more in common with TCI (the large cable company) than with the computer services wing of IBM. America Online is a content aggregator -- a curious combination of a connectivity provider and a content company.
Companies like America Online are gathering subscribers. These pairs of eyes glued to computer monitors are the company's most important asset. This is not a technology company, this is a consumer product packaged to be sold to the masses by an ex-Frito Lay and Procter & Gamble executive. "The best technology is invisible," is the mantra of Steve Case, and some of the Internet service providers like UUNet Technologies are beginning to understand this as well, gathering a lucrative coterie of business clients that do not have near the churn rate of the consumer online services.
Content aggregation is typified by a company building an infrastructure to deliver content through a third party platform. Famous examples of content aggregators are NBC and the Westwood One Radio Network. Capture the "eyes" with content -- and advertising sales and lucrative merchandising opportunities follow, making for big profits. America Online suffers from the fact that its so-called competition, CompuServe and Prodigy, really have not been in the same business that it has been in for a while. Neither have a substantial investment in network infrastructure; neither have programs dedicated to developing new and inventive content rather than the same old repackaged schlock the magazine companies are powering down their throats.
Once CompuServe comes public, I would not be surprised to see one of the network companies snap it up in order to mimic America Online's innovative strategy and latch on to the growth in the medium. Or Microsoft could cross-over the other way and pick up the 85% of UUNet that it does not own at today's bargain price and have the most extensive international network in the world. Anyone familiar with the early days of TV can see the same rapid change from a wooden beginning to a dynamic, advertising-powered end. How long is it before the FCC steps in to ensure there are three serious players, as they did in 1943 when they broke up RCA's Blue Network (run by a TV manufacturer) into NBC and ABC?
Understanding a content aggregator is about holding and maintaining the variant perception that these are not simply services in a PC-centric world. Rather, in the wired world where you can access online services from multiple platforms at faster and faster speeds, the role of a content aggregator is to develop differentiated, unique services impossible to deliver through conventional media. Online services will not displace traditional media but will supplement them -- the hardest thing is to imagine the integrated picture where AOL becomes another New York Times or ABC.
II. Data Services
Pure data is the simplest and most lucrative from of content. Whether you are clearing credit card transactions, enabling online banking or allowing companies faster order times through electronic document interchange (EDI), there is a lot of potential here in the business-to-business and individual-to-business markets for these companies. Their diversity is startling as well. Pure data exists in a world without platform -- the only companies here that can survive are "cross-platform", meaning they have no commitment to one piece of hardware. When viewed outside of the PC-centric vision, the ramifications of these companies' situations become compelling.
Most readers are familiar with my treatment of the financial players in the data services market from the Digital World (see the Fool Store for the collected, expanded and corrected version at keyword: FoolMart). Suffice to say, the market here is big and after some fits and starts it looks like Intuit (maker of Quicken) and Microsoft are going head-to-head on the online banking front with lagging CheckFree and the Nationsbank consortium (owner of Managing Your Money) as the also-rans.
What about Cardinal Bancshares and the initial public offering (IPO) of its First Security Network Bank? Hot air, in my understanding from qualified sources. There is no electronic transaction -- only printed checks after the electronic orders clear. Sure, Intuit has only 10% electronic transactions right now, but they aim to rapidly expand this as it increases margins. First Security has no such intentions and it remains to be seen whether their first 1,000 customers are genuine or the "early adopters" that you so often see no one following. Know anyone who "early adopted" LaserDisc home movies the first time they came out?
The back-end is where the real hand-to-hand combat is going to take place. These are the guys clearing the transactions and the big guns are all lined up and partnering left and right. You have MasterCard and National Data, EDS and CheckFree, Visa and Microsoft, and Intuit winning the hearts and minds with its popular Quicken front end. Throw in Verifone with Netscape and Oracle, as well as CyberCash, DigiCash and First Virtual, and you have a regular cornucopia. Frankly, in the end it is just the next phase to electronic cash that started with credit cards and continued with ATMs -- there is nothing revolutionary here and the market will be huge. This is a market that is a lot like the early content aggregators -- everyone will win unless they fail to execute. (CheckFree is the most likely failure, in my opinion.)
The other electronic service with less-defined players is the electronic commerce market. This is where you send documents from company to company electronically, rather than using the conventional mail. The most-often heard name from investors here is Harbinger, concentrating on the small and medium sized markets. Electronic commerce is trade between businesses -- kind of the next level of faxes. Much like faxes, the industry expects to hit an inflection point of growth when market penetration hits 5% to 10% and it no longer seems like a rarity.
Personally, I think EDI has a lot of potential just because it is so damn boring. In the wired world of instantaneous video, seeing purchase orders zip back and forth electronically seems a little boring by comparison. I'll be frank when I say I do not know that much about the industry, but my foreground conclusion is that a look into Harbinger and a ferreting-out of what its product "really" is as well as a look at its competition would be interesting.
The last data service I want to touch on is the pure data service. Whether it is the Gartner Group with its unique technology hardware and software databases or ex-utility Primark with its variety of financial information and weather databases, the value of these huge data companies is that it is almost impossible at this late date to catch up and duplicate their products. Certainly players with an inventive approach that can tap into a new market stand a chance -- like the Fool in the financial arena, for instance -- but by and large the "moats" surrounding most of these companies are as deep and wide as the one surrounding Coca-Cola.
Technophrenia: Post Script
Reaction to Technophrenia has been mixed, at best. Some have decried the return to a more "academic" tone and a lack of specificity when dealing with the stocks. I would counter that the language being labeled as academic is in reality philosophical and is required in order to fully paint and process the implications inherent in radical deconstruction. But at the same time, I can appreciate the dilemma this causes for a reader simply not interested in the deepest looks.
To put it bluntly, Technophrenia is in part an attitude and in part a commitment to historical thinking on the part of investors -- the rarest commodity on the Street in a time of an excruciatingly-detailed quarter-by-quarter focus. The general theme of the obsolete "tech sector" has been evolving for me each day that I write about it. When I started this series, I knew that the tech sector was an historical construct, but only as I continued through the series did I begin to understand that the PC-centric vision it enforces destroys the idea of what a computer is -- forcing everything "technological" to revolve around one limited form of access.
The new categories/industries described, unlike the Digital World , are not comprehensive accountings of the players. Rather, they stand as a general proof of their existence. The work I am doing now is a foundation to explore these topics in more detail in the future. Technophrenia is a curious hybrid of opus, reference and jazz. Technophrenia is a series of footnotes that allow me spend more time doing the detailed discussion of individual equities in the future, without wasting valuable news space repeating the same core arguments in every future issue of the News as I deal with denizens of the now defunct "technology sector".
View Technophrenia as my attempt to develop a new investment vocabulary which I sincerely believe will enable me to speak with more perspicacity and insight about stocks in future issues of the News. Like any reference, it is a little ostentatious and boring by itself, but on your bookshelf it gives you quick reference to a number of ideas that would otherwise be sizable footnotes or parenthetical notations.
New! The Fool Quiz Primer!
Do you have what it takes to be a Fool? Is your investing outlook sufficiently Foolish? Well. . . take The Fool Quiz! The Fool Quiz is a new primer by Jeff Robinson (MF Swagman) and is chock full of entertaining questions and situations where you have to make an investment decision. And no, you don't have to order the teacher's guide separately! The detailed answers are included. Learn all about investing from the stories of Wenceslas Widgets and Mercutio's Church Doors. Make sure you know when to buy, when to short, and when to sell. Find out what CANSLIM and the PEG and the PPP really are. A masterful Foolish overview, and as interactive as printed paper can get! The Fool Quiz is available for $12 (plus $2.50 s&h) in FoolMart or by e-mailing [email protected].
Byline: Randy Befumo (MF Templar)