<% ' AvantGo:MarketClose %>DJIA 8879.68 -184.86 (-2.04%) S&P 500 1150.14 -21.11 (-1.80%) Nasdaq 1954.33 -40.88 (-2.05%) Value Line ndx 882.32 -8.08 (-0.91%) 30-Year Bond 103 26/32 +9/32 5.00% Yield<% ' AvantGo:End %>
<% ' AvantGo:Heroes %>While Ticketmaster Online-CitySearch <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMCS)") else Response.Write("(Nasdaq: TMCS)") end if %> couldn't hold on to its $52 per share opening price, this week's most anticipated Internet initial public offering still left its initial offer price in the dust as investors were eager to push the stock up in its first day of trading. The company, which provides local city guides, local advertising, and live event ticketing on the Internet, rushed ahead $26 1/4 to $40 1/4 following a lengthy delay. The company sold 7 million shares at an initial offering price of $14 a share, which was slightly above the estimated range. Ticketmaster Online-CitySearch is 70%-owned by Barry Diller's USA Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USAI)") else Response.Write("(Nasdaq: USAI)") end if %>, which fell $3 1/4 to $30 5/8 on heavy volume. It's worth noting that the company's concept isn't entirely unique -- and one big competitor has a pretty strong reputation in the world of cyberspace. Click over to the Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Network's Sidewalk site, which includes Ticketmaster contacts, for comparison.
A long, painful 13 months for Micrion Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MICN)") else Response.Write("(Nasdaq: MICN)") end if %> shareholders may have ended today. The focused ion beam (FIB) semiconductor fabrication equipment maker blazed ahead $3 9/16, or 49.1%, to $10 13/16 after it announced plans to merge with a subsidiary of competitor FEI Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FEIC)") else Response.Write("(Nasdaq: FEIC)") end if %>. Under the terms of the deal, most Micrion shareholders will receive one share of FEI stock and $6 cash for each of their shares, a nearly 95% premium based on Wednesday's closing prices for the two companies. FEI stock fell $1 1/8 to $7 today, as its shareholders were likely wondering why their company was paying so much for a firm that frequently misses earnings estimates and has seen its stock fall steadily since crossing the $24 per share level in October 1997.
QUICK TAKES: Investors sent shares of discount apparel catalog retailer and September Daily Trouble Brylane <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYL)") else Response.Write("(NYSE: BYL)") end if %> up $5 to $22 1/8 today following Paris-based specialty retailer Pinault-Printemps-Redoute SA's announcement late yesterday of a proposal to acquire all remaining Brylane shares it doesn't already own, about 50.1%, for $20 a share. One Fool shares his skepticism in today's Lunchtime News.... Local exchange carrier and telecommunications services provider GTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %> rang up gains to $3 1/8 to $65 5/8 on reports that the company will provide Internet service for the China Internet Information Center, that country's leading online news source. Merrill Lynch upgraded the stock to "near-term buy" from "near-term accumulate" today... Drugstore giant CVS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVS)") else Response.Write("(NYSE: CVS)") end if %> popped up $1 1/16 to $50 15/16 after it said November same-store sales were 14% above last year's levels. For a rundown of monthly same-store sales figures, click here.
Truck manufacturer Navistar International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAV)") else Response.Write("(NYSE: NAV)") end if %> zoomed ahead $1 13/16 to $26 9/16 after reporting fiscal Q4 EPS of $2.14, up from $0.85 last year and well above the six-analyst estimate of $1.46 listed by First Call... Shares of Valley Forge Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VF)") else Response.Write("(AMEX: VF)") end if %>, which makes a broad array of industrial equipment, shot up $5 3/4 to $18 1/2 today after Key Components LLC said it will buy Valley Forge in an $82 million stock swap. The $19 per share price is a 49% premium to Wednesday's close... Biopharmaceutical company Immunex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNX)") else Response.Write("(Nasdaq: IMNX)") end if %> rose $3 11/16 to $99 1/4 today on reports that it will seek FDA approval to broaden the use of its multiple sclerosis drug Novantrone... Managed health holding company Mid-Atlantic Medical Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MME)") else Response.Write("(NYSE: MME)") end if %> won $1 1/16 to $9 7/16 on the news that five members of the company's board asked a Delaware court to help oust the chairman George Jochum.
Prompted by yesterday's upbeat earnings news from Analog Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADI)") else Response.Write("(NYSE: ADI)") end if %>, which makes integrated circuits for analog and digital signal processing (DSP) applications, several other chip companies posted solid gains today. Lattice Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LSCC)") else Response.Write("(Nasdaq: LSCC)") end if %> rose $5 9/16 to $41 1/2, Linear Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LLTC)") else Response.Write("(Nasdaq: LLTC)") end if %> moved ahead $5 3/8 to $78 1/8, Micrel Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCRL)") else Response.Write("(Nasdaq: MCRL)") end if %> took $3 1/4 to close at $46 1/8, and Vitesse Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VTSS)") else Response.Write("(Nasdaq: VTSS)") end if %> earned $4 11/32 to $41 11/16. Analog Devices, upgraded to "buy" from "hold" by ABN Amro, advanced $3 1/8 to $27 1/4... Specialty semiconductor designer Xilinx Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XLNX)") else Response.Write("(Nasdaq: XLNX)") end if %> charged up $3/8 to $56 13/16 after Prudential Securities boosted its rating on the stock to "accumulate" from "hold," while Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> won $5/8 to $46 3/8 after Credit Suisse First Boston upgraded the company to "strong buy" from "buy," setting a price target of $65 per share.
Microprocessor and integrated circuits maker National Semiconductor Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSM)") else Response.Write("(NYSE: NSM)") end if %> shot ahead $1 1/4 to $16 5/8 after NationsBank Montgomery Securities upgraded it to "buy" from "hold"... Consumer products distributor AMCON Distributing Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIST)") else Response.Write("(Nasdaq: DIST)") end if %> spread $5/8 to $7 3/8 after it reported fiscal Q4 EPS of $0.26, up from $0.18 last year... Online transaction processing services provider Pegasus Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PEGS)") else Response.Write("(Nasdaq: PEGS)") end if %> flapped up $1 7/8 to $23 after it said France's Concorde Hotels will use Pegasus products for reservations processing... Data management software developer Pervasive Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PVSW)") else Response.Write("(Nasdaq: PVSW)") end if %> improved $1 to $12 following a press release saying its Tango Enterprise product has been integrated into recent Internet IPO theglobe.com's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGLO)") else Response.Write("(Nasdaq: TGLO)") end if %> online community.
UBICS Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UBIX)") else Response.Write("(Nasdaq: UBIX)") end if %> jumped ahead $1 1/4 to $7 1/4 after the information technology services provider announced a letter of intent to purchase privately held IT consulting and outsourcing firm R Systems for about 4.9 million shares of stock... Disability and workers' compensation management services provider Core Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CORE)") else Response.Write("(Nasdaq: CORE)") end if %> rose $2 to $7 3/4 after BT Alex. Brown started coverage of the company with a "strong buy" rating... Floorcovering retailer The Maxim Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MXG)") else Response.Write("(NYSE: MXG)") end if %> grabbed $1 11/16 to $21 13/16 after it turned in Q3 EPS of $0.32, a penny above last year's figure and in line with Street estimates. "Most areas of the company posted solid increases in sales and profitability" in Q3, according to its CEO... International training and education company TRO Learning <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TUTR)") else Response.Write("(Nasdaq: TUTR)") end if %> improved $1 1/8 to $10 1/16 after it reported fiscal Q4 EPS of $0.73, well above last year's $2.31 per share loss.<% ' AvantGo:End %>
<% ' AvantGo:Goats %>Catalog retailer Lillian Vernon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: LVC)") else Response.Write("(AMEX: LVC)") end if %> announced last night that it has launched a new website with "upgraded shopping capabilities and graphic enhancements" at www.lillianvernon.com. The announcement was about a week too late to take part in the recent Internet-related share price blitz, though, and traders penalized the company for its tardiness be driving its shares down to $1 5/16 to $15 3/16 today. Several recent Web-related run-ups from last week also fell, as the hot-cold sector turned cold once again. Egghead.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGGS)") else Response.Write("(Nasdaq: EGGS)") end if %> was fried $5 9/16 to $16 1/16, Books-A-Million <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAMM)") else Response.Write("(Nasdaq: BAMM)") end if %> was burned $3 3/4 to $12 1/4, NetRadio owner Navarre Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAVR)") else Response.Write("(Nasdaq: NAVR)") end if %> slid $2 1/4 to $7 1/4, Wavephore <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WAVO)") else Response.Write("(Nasdaq: WAVO)") end if %> receded $1 9/16 to $7 15/16, Onsale <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONSL)") else Response.Write("(Nasdaq: ONSL)") end if %> was marked down $12 5/8 to $38 7/8, and Open Market <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMKT)") else Response.Write("(Nasdaq: OMKT)") end if %> fell $1 13/16 to $11 1/8.
Networking products maker Cabletron Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> dropped $1 3/4 to $9 after pre-announcing a fiscal Q3 (ended November 30) operating loss of about $0.10 per share before charges. Analysts were forecasting earnings of $0.11 per share, according to First Call. Revenues will be between $330 million and $340 million, or relatively flat to only slightly higher than last year's results. Part of the loss was chalked up to pricing pressures and "shifts in technology," particularly as sales of Cabletron's aging shared media hub products become a smaller portion of its total revenue mix. The company is hoping its new Layer 3 switch, which is reportedly meeting strong demand, will pick up the revenue slack in future quarters, especially after a wide access networking (WAN) interface for the product starts shipping in Q4. Annual Layer 3-related sales could hit $300 million in fiscal 2000, according to one analyst. For slumping Cabletron, though, that kind of a revenue boost can't come soon enough.
Stocks tied to soccer-mad Brazil got a collective red card from the U.S. markets today after Brazilian legislators nixed a tax proposal that would have helped reduce the country's $64 billion budget deficit. In response, the country's main stock index dropped more than 8% today on worries that the inaction on the deficit front adds more risk to Brazilian equities. Unibanco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UBB)") else Response.Write("(NYSE: UBB)") end if %>, the smallest member of Brazil's major private banking triumvirate, fell $3 7/8 to $16. Meanwhile, the American depositary shares of the 12 new holding companies formed by the recent breakup of telephone monopoly Telebras also dropped. Among the large losers in the latter group, Telesp Participacoes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSP)") else Response.Write("(NYSE: TSP)") end if %> slid $2 7/16 to $23 3/8, Telecomunicacoes Brasileiras <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBH)") else Response.Write("(NYSE: TBH)") end if %> sank $9 7/16 to $83 7/8, and Tele Norte Leste Participacoes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TNE)") else Response.Write("(NYSE: TNE)") end if %> slumped $1 13/16 to $16 11/16.
QUICK CUTS: Bovine boxmaker Gateway <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> moo-ved down $6 11/16 to $51 3/4 on reports CEO Ted Waitt told investors that Q4 sales will be lower than the company had hoped due to slower shipments in October and November... Aircraft maker Boeing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> lost another $1 15/16 to $31 3/4 after falling 17% yesterday on news of layoffs and production cutbacks in its commercial airliner unit... Document company Xerox Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XRX)") else Response.Write("(NYSE: XRX)") end if %> slid $4 11/16 to $104 9/16 after agreeing to merge its ScanSoft digital imaging unit with the software arm of Visioneer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VSNR)") else Response.Write("(Nasdaq: VSNR)") end if %>, with Xerox owning 45% of the newly formed company and Visioneer owning the remaining 55%.
Several retailers fell this morning after reporting declines in November same-store sales figures. Women's apparel retailer Cato Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CACOA)") else Response.Write("(Nasdaq: CACOA)") end if %> dropped $3 to $10 1/16 after reporting a 7% slide in same-store sales, while a 10% slide in comps at Goody's Family Clothing <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GDYS)") else Response.Write("(Nasdaq: GDYS)") end if %> drove that company's shares down $1 1/8 to $9. Athletic shoe store Footstar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTS)") else Response.Write("(NYSE: FTS)") end if %> lost $3 13/16 to $19 5/16 on a 12.7% decline in comparable-store sales during the month... Children's Comprehensive Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KIDS)") else Response.Write("(Nasdaq: KIDS)") end if %>, which operates treatment centers for at-risk and troubled children, moved down $2 5/8 to $9 5/8 following a NationsBanc Montgomery Securities downgrade to "hold" from "buy"... Digital animation feature film production firm Pixar Animation Studios <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PIXR)") else Response.Write("(Nasdaq: PIXR)") end if %> was knocked down $3 5/8 to $44 3/8 by a downgrade from Morgan Stanley Dean Witter to "neutral" from "outperform" (for a closer look at Pixar, check out last week's Dueling Fools).
Sneaker maker Nike <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> was tripped for a $2 1/8 loss to $36 7/8 after BT Alex. Brown lowered its rating on the firm to "market perform" from "buy"... Enterprise application software company BMC Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMCS)") else Response.Write("(Nasdaq: BMCS)") end if %> lost $5 1/4 to $51 after Morgan Stanley Dean Witter lowered its rating to "neutral" from "outperform." The move follows an 8% gain yesterday after the company's CFO reportedly made positive comments about BMC's outlook at an investors' conference... Payroll and benefits outsourcing firm Automatic Data Processing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AUD)") else Response.Write("(NYSE: AUD)") end if %> fell $3 3/4 to $75 5/8 after agreeing to buy human resources services provider Vincam Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VCAM)") else Response.Write("(Nasdaq: VCAM)") end if %> for 3.7 million shares, or roughly $294 million based in yesterday's closing price. Vincam gained $1 3/8 to $16.
Number 5 U.S. air carrier Continental Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAI.B)") else Response.Write("(NYSE: CAI.B)") end if %> skidded $2 to $35 after Salomon Smith Barney cut its rating on the stock to "outperform" from "buy"... Broadband networking products supplier ANTEC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANTC)") else Response.Write("(Nasdaq: ANTC)") end if %> sank $3 3/4 to $16 after saying its fourth quarter is "not shaping up as anticipated" due to lower-than-expected international sales, which will result in earnings in the $0.02-$0.04 per share range. The First Call mean estimate had called for earnings of $0.14 per share in the quarter... Laser vision correction systems maker VISX Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VISX)") else Response.Write("(Nasdaq: VISX)") end if %> was sliced $6 1/4 to $70 3/4 following a downgrade to "attractive" from "buy" by PaineWebber.<% ' AvantGo:End %>
FOOL
ON THE HILL
An Investment Opinion
by
Dale Wettlaufer
The Internet and Human Endeavor
<% ' AvantGo:FOTH %>You're probably going to see this on the television news tonight or hear about it on your favorite morning radio show on the commute to work tomorrow, because I'm lifting the idea from a press release I read today. An America Online/Roper Starch "cyberstudy" (I thought we stopped creating words using using the prefix "cyber" sometime in 1996) released today shows 44% (+/- 3%) of the 1001 adult respondents who subscribe to an online service believe their Internet connection is a necessity. The majority of the respondents replied affirmatively to "feeling good about being online" questions posed in the survey. Most people believe that the online medium has improved their lives.
That's pretty powerful stuff, considering that over one-quarter of those surveyed have been online for a year or less. Their enthusiasm isn't just the result of newbie excitement about getting "wired" on the "'net." The more time a person has spent online, the more they have integrated online access and content into their lives. However, I would bet people thought the same thing about television in the 1950s and radio in the 1920s. Just how different will the Internet be from TV's influence on American society and world culture? Sure, the Internet is supposed to improve democracy and unshackle information blah blah blah, making for more perfect political unions. But online political forums can be really tiring to read and dulling to the soul in the factiousness of the debate. Some people would contend that the world has become more fractious because of new media and that the general level of the cacophony created by mass media has risen with each new innovation.
Well, maybe this is blas�, but I've come to the point where I view the machine on my desk as pretty much an appliance. It's a stack of circuit boards and semiconductors, and it does allow me to do things I never did before. Such as make trips to the bookstore on a weekly basis, whereas before that wasn't a viable option because I loathe shopping malls. Such as buy a car online, which I did earlier this year. Such as look up SEC filings rather than rely on occasionally unresponsive investor relations departments to send me those filings. I definitely appreciate that. But no longer do I marvel at the medium. No longer is the subject of how the Internet is changing the world a subject I want to talk about at a party. It's actually a boring topic.
What does this mean for investors? Not to worry, it means a lot. It means that after almost five years of using this medium for communication, it's no longer a novelty. It's mainstream and it's the way it's going to go for the rest of our lives and beyond. It means that eventually PC companies will no longer be fast-growers with great economics if managed right. They'll basically be television manufacturers. America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> and Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> will be like ABC and CBS and not akin to ham radio as they were in the beginning. AOL started as a platform for the distribution and play of video games, and Yahoo! was someone's list of bookmarks or "favorite places," for crying out loud. Now their market caps are multiples of the equity market value of Capital Cities/ABC when that company was acquired by Walt Disney Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> three short years ago.
Some people will say this is the result of mass investor delusion, that this is a bubble. While I'm quite ready to say that valuations are inflated, I'm not so skeptical to pass off as wildly overvalued anything that trades at 50 times book value or 20 times revenues. A company's value is driven by the value of the free cash flows it can produce over its lifetime. It's not driven by how much equity is on the balance sheet today or how many dollars of revenues it's generating today. Those are heuristics that serve as data points in assessing the value of a company. They don't tell you on their own what a company is worth.
Yesterday, I was told that I had hyped Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> because I compared the company to GEICO Direct Auto Insurance, a unit of Berkshire Hathaway <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRK.A)") else Response.Write("(NYSE: BRK.A)") end if %>. This person told me that GEICO's business model all but assures it of making a profit, while Amazon.com's model is much different. Let's leave aside the notion that "all the rules have changed because of the Internet." They haven't. Companies will still be poorly managed and a select few companies will be very well managed, no matter what the medium of commerce is. If established competitors could just come in and crush entrepreneurial ventures, you'd be going down to Montgomery Ward this weekend rather than Wal-Mart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %>. And you'd be shopping at Ace Hardware rather than at Home Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>. You'd also be reading this data delivered to you through a Bell Labs router on your Digital Equipment Corp. computer with IBM Windows 98 as your operating system.
You might have picked up your computer at your favorite warehouse club at a severe discount, but don't try to tell that to people who want to sell Amazon.com short based on its low gross margin and the impossibility of the company to avoid the inevitable pricing pressures that will ruin all Internet retailers. According to such people, you can't make money on gross margins of 22%, and forget about it if you try to make money on gross margins of 12%. All of this ignores the very real fact that there are companies that make tons of money on gross margins of 20%, 15%, and under 12%. And these companies are very much cash flow positive, too. If you're having a tough time with that one, check out Costco's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COST)") else Response.Write("(Nasdaq: COST)") end if %> numbers and the way it moves its inventory. Look a its cash conversion cycle (days in inventory plus days in receivables minus days in payables) and then compare that with all sorts of other companies. While you're looking at companies with gross margins under 12%, take a look at B.J.'s Wholesale <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BJ)") else Response.Write("(NYSE: BJ)") end if %>.
The very best Internet retailers have a very good shot at staying around. I won't say they will stay, because I don't know what jackass might come along five years from now and wreck a good franchise. The Internet is a fact of life and it's going to stay. And look out when midband and broadband pipes start to become commonplace for consumers. The way we invest, the way we communicate, the way we gather information to understand what's going around us, and the way we do a lot of things has been irrevocably changed. But that doesn't change the fact that human capabilities and outcomes are spread across normal distributions. In other words, not every retailer that operates on the Internet is going to be an incredibly well-run company. Not every retailer that has to deal with the fact of 10% gross margins will be a success. Not every Internet portal will be a good information aggregator just because it's called a portal in the company's press release.
Investors should realize that there are companies that will strike it huge on the Internet because they have the human talent, financial capital, the right products or services that customers want, and a rapidly growing market penetration in American, and eventually worldwide, homes. Low margins are a red herring, and the fact that a company might not be making money today doesn't mean that it will never make money. Arguments predicated on the perfection of competition on the Internet and the total destruction of competitive advantages born of brand names or goodwill that a company can build with its customers are pretty much at odds with the history of commerce over the last two hundred years. New companies will take advantage of new technologies and learn how to become preeminent in whatever industry in which they operate.
So get used to the fact that the Internet is here to stay and that it doesn't break all the rules that apply to human endeavors and that it will fulfill the rules of perfect competition that we suffer through in Econ 101. (Barron's had a great piece on this recently). Maybe competition will approach this condition more closely, but it won't ever get there while there's a service element to be overlaid onto a commodity good that is being sold. Whatever its effects on society and all the endeavors of the members thereof, for ill or for worse, the Internet brings incremental changes to how we already live our lives. It doesn't change everything, and it doesn't revoke time-tested truisms of the way things go.<% ' AvantGo:End %>
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