DJIA 9349.56 -125.12 (-1.32%) S&P 500 1234.40 -5.11 (-0.41%) Nasdaq 2316.81 -3.94 (-0.17%) Value Line Index 930.24 -6.39 (-0.68%) 30-Year Bond 101 26/32 +1 9/32 5.13 Yield
Refractive laser technology developer VISX Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VISX)") else Response.Write("(Nasdaq: VISX)") end if %> managed a gain of $15 3/16 to $116 5/8 after pre-announcing Q4 EPS of between $0.71 and $0.73, well ahead of last year's $0.30 mark and topping the market's $0.66 consensus projection. The company expects to report results Jan. 20. VISX approached intrasession price levels nearly three times those it saw when the Fool chronicled its rise in a Daily Double last April. The reasons for last year's report -- rising license fees stemming from strong equipment sales -- are echoed in today's results: the company said shipments and license fees hit record levels in Q4. The company's stock is scheduled to split 2-for-1 after the market's close today, bringing the total outstanding sharecount to about 33 million common shares.
Data networking equipment company Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> moved up $5 3/8 to $80 5/16 after telecom equipment maker Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> agreed to buy the company in an all-stock deal valued around $19.3 billion, or $89 per share, about a 19% premium based on yesterday's closing prices. Lucent lost $3 1/8 to $104 3/4 on the news, which was rumored for days. Shares of Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> continued to fall today, losing $2 1/4 to $95 7/8 on continued worries that the combined Lucent/Ascend would pose a serious threat to its industry-standard switching technology. Also worth watching today were shares of Newbridge Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NN)") else Response.Write("(NYSE: NN)") end if %>, up $1 7/16 to $36 3/16, and Fore Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORE)") else Response.Write("(Nasdaq: FORE)") end if %>, ahead $11/16 to $20 5/8, as the two companies appear to have benefited from the increased attention the merger is drawing to the asynchronous transfer mode (ATM) technology field. For more details on the Ascend/Lucent deal, see this morning's Breakfast With the Fool.
QUICK TAKES: Leading computer chip maker Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> rose $3 7/16 to $139 after Q4 earnings came in at $1.19 a share, up from $0.98 last year and ahead of the First Call analysts' mean estimate of $1.07. For more insight, see yesterday's Drip Portfolio Report... Blue (and, now, other colors) PC maker Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> ripened $3/8 to $46 1/2 today. After the bell, the company reported fiscal Q1 EPS of $0.95, well above First Call's $0.70 consensus estimate. Apple sold 519,000 iMacs during the three-month period... Hamburger chain Wendy's International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WEN)") else Response.Write("(NYSE: WEN)") end if %> sizzled $1 3/16 to $23 3/16 after The Wall Street Journal's "Heard on the Street" column quoted analysts who said the company is operating with shareholders' interests in mind and believe the stock is due for an upturn in light of recent gains at market leader McDonald's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %>.
Drug developer Eli Lilly & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LLY)") else Response.Write("(NYSE: LLY)") end if %> popped up $4 3/16 to $80 11/16 after a U.S. district court in Indiana ruled to reduce the number of issues to be tried in a case challenging two U.S. patents for the company's powerhouse Prozac antidepressant... Integrated circuits manufacturer Linear Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LLTC)") else Response.Write("(Nasdaq: LLTC)") end if %> advanced $12 3/16 to $99 13/16 after reporting fiscal Q2 EPS of $0.59, beating last year's $0.55 mark and Wall Street's $0.57 consensus estimate. The company also announced plans for a 2-for-1 stock split effective Feb. 19... Biopharmaceutical company Immunex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNX)") else Response.Write("(Nasdaq: IMNX)") end if %> grabbed $8 1/2 to $128 1/2 after CEO Edward Fritzky said at a conference that the company is comfortable with Wall Street's $0.17 EPS estimate for Q4.
Telecommunications infrastructure provider MasTec Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTZ)") else Response.Write("(NYSE: MTZ)") end if %> rose $3 3/16 to $26 7/16 after it said Q4 revenue is expected to beat analysts' expectations and hired two advisers to explore alternatives for its Latin American assets... Disk drive maker Seagate Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> spun ahead $2 11/16 to $41 5/8 after it reported fiscal Q2 EPS of $0.42, well ahead of last year's $0.08 loss and the market's $0.26 estimate... Technology training and graphics software products developer ViaGrafix Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VIAX)") else Response.Write("(Nasdaq: VIAX)") end if %> added $4 to $9 3/4 after it announced an agreement to market its products through America Online's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> online service... KeraVision Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KERA)") else Response.Write("(Nasdaq: KERA)") end if %>, which is developing a non-laser approach for correcting low to moderate myopia, beamed up $4 11/16 to $16 1/16 after an FDA panel recommended approval of the company's first product, Intacs, for treatment of nearsightedness.
Waste processing company KTI Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KTIE)") else Response.Write("(Nasdaq: KTIE)") end if %> wafted up $1 1/8 to $23 1/4 after non-hazardous waste services company Casella Waste Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CWST)") else Response.Write("(Nasdaq: CWST)") end if %> agreed to buy the company in a stock swap valuing KTI at about $25.59 per share, a 15.7% premium to yesterday's closing price... Healthcare management software developer QuadraMed Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QMDC)") else Response.Write("(Nasdaq: QMDC)") end if %> took $1 3/8 to $28 15/16 after it said it won a five-year $5.4 million contract to manage New Jersey's hospital discharge claims data. Adams, Harkness & Hill started coverage of the company with a "strong buy" rating today... Graphics accelerator technologies company 3DLabs Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDDDF)") else Response.Write("(Nasdaq: TDDDF)") end if %> added $1 1/2 to $5 1/2 after the company said PC maker Gateway <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> chose its Oxygen GMX board as the high-end option for its E-5200 and E-5250 Windows NT workstations.
Online services provider and direct marketer Xoom.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XMCM)") else Response.Write("(Nasdaq: XMCM)") end if %> zoomed up $2 3/4 to $38 1/8 as BlueStone Capital Partners started coverage of the company with a "buy" recommendation and a $100 12-month price target... Auto security systems manufacturer Strattec Security <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRT)") else Response.Write("(Nasdaq: STRT)") end if %> locked up gains of $1 3/4 to $29 7/8 after announcing fiscal Q2 EPS of $0.81, beating the $0.70 consensus estimate two analysts gave First Call... Cable-based online services provider @Home Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATHM)") else Response.Write("(Nasdaq: ATHM)") end if %> moved ahead $5 3/4 to $105 3/4 after Prudential Securities upgraded the stock to "strong buy" from "accumulate" following yesterday's big drop... While the retirement of His Airness probably helped, today's move of $2 1/2 to $16 1/2 by Boston Celtics LP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOS)") else Response.Write("(NYSE: BOS)") end if %> was probably more connected to the news that a group including Chairman Paul Gaston made a $17 per share offer for up to 430,000 limited partnership interests in the company, a 16% stake.
Specialty chemicals maker Witco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WIT)") else Response.Write("(NYSE: WIT)") end if %> bubbled up $1 1/8 to $17 13/16 as the company said it will divest or look for partnerships for its oleochemicals and derivatives group as well as cut operating expenses. The company expects to report a transaction this year... Flash memory data storage products company SanDisk Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNDK)") else Response.Write("(Nasdaq: SNDK)") end if %> flashed up $3 9/16 to $20 after Wheat First Union upgraded the stock to "outperform" from "hold"... Semiconductor base materials producer American Xtal Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AXTI)") else Response.Write("(Nasdaq: AXTI)") end if %> rose $4 1/4 to $16 3/8 after Prudential Securities upgraded the stock to "strong buy" from an "accumulate" rating, setting a 12-month price target of $20 per share... "System on a Chip" company LSI Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LSI)") else Response.Write("(NYSE: LSI)") end if %> earned $2 7/16 to $21 1/2 after NationsBank Montgomery and Gerard, Klauer, Mattison & Co. upgraded the stock to "buy" from "hold."
Given the day's turmoil in Brazil, it was not too surprising to see many stocks with ties to that country falling like samba dancers with their shoe laces tied together today. Among the beaten down, electric utility Copel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELP)") else Response.Write("(NYSE: ELP)") end if %> tumbled $7/8 to $5 and long-distance telecom company Embratel Participacoes S.A. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMT)") else Response.Write("(NYSE: EMT)") end if %> lost $2 9/16 to $10 1/2. AES Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AES)") else Response.Write("(NYSE: AES)") end if %>, which owns and operates 39 electric power plants in Brazil, was zapped $4 1/16 to $38 15/16. The American depositary shares of the 12 holding companies formed by last year's breakup of Brazil's former telephone monopoly Telebras also dropped. Among the latter group, Telesp Participacoes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSP)") else Response.Write("(NYSE: TSP)") end if %> slid $1 7/16 to $16 1/8, Telecomunicacoes Brasileiras <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBH)") else Response.Write("(NYSE: TBH)") end if %> sank $6 to $56 5/8, and Tele Norte Leste Participacoes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TNE)") else Response.Write("(NYSE: TNE)") end if %> slumped $1 9/16 to $9 3/4. For more details on just what's going on in the land of Pele, see this afternoon's Fool Plate Special.
Canadian ambulance and school bus supplier Laidlaw Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LDW)") else Response.Write("(NYSE: LDW)") end if %> was dumped for a $15/16 loss to $9 3/16 after the company reported fiscal Q1 operating earnings of $0.245 per share. The figure excludes a $0.015 per share after-tax gain related to the sale of a business unit in its STAT Healthcare emergency department management subsidiary during the quarter. The results were just shy of the $0.25 to $0.28 per share range estimated by analysts surveyed by First Call. Laidlaw attributed the shortfall to its ambulance services segment, which saw its revenues slide 11.4% sequentially to $265.2 million due to price and volume changes and various divestitures during the period. However, the company said its proposed acquisition of Greyhound Lines <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BUS)") else Response.Write("(AMEX: BUS)") end if %> remains "on schedule" -- perhaps a first for the oft-delayed and much-maligned bus line.
QUICK CUTS: Among those companies in the financial services sector hardest hit today from the Brazilian fallout, Citigroup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> lost $3 9/16 to $52 3/16, Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> dropped $2 1/4 to $71 5/8, J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %> slid $5 1/4 to $106 9/16, and American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> trended down $3 11/16 to $98 11/16... Several Internet-related stocks also skidded today. Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> slid $34 to $368, America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> dropped $6 9/16 to $147 1/16, Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> slipped $15 3/8 to $148, and Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> fell $5 3/4 to $59 3/8... Multimedia wiring systems distributor Anicom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANIC)") else Response.Write("(Nasdaq: ANIC)") end if %> tanked $1 3/8 to $8 after warning that its Q4 EPS will come in between $0.08 and $0.10, missing the First Call mean estimate of $0.13. The company blamed the shortfall on expenses related to the sale of its Broadband products group during the quarter.
Books retailer Books-A-Million <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAMM)") else Response.Write("(Nasdaq: BAMM)") end if %> was thumped for $1/2 to $13 1/8 after saying its December same-store sales rose by a scant 0.4% compared to a year ago. So far during the fiscal fourth quarter, the company's same-store sales are down 1.9% from last year's levels... Online software retailer Beyond.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BYND)") else Response.Write("(Nasdaq: BYND)") end if %> was thrown for a $6 7/16 loss to $30 9/16 after reporting a fiscal Q4 loss of $0.53 per share compared to a loss of $0.12 per share last year, which was a bit worse than the $0.47 per share loss expected by analysts surveyed by Zacks... Online discount broker E*Trade Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> gave back $8 1/16 to $92 7/8 today, ending a five-day rally that had boosted the company's share price by a cumulative 87%.
Managed healthcare provider Foundation Health Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FHS)") else Response.Write("(NYSE: FHS)") end if %> settled for a $11/16 loss to $9 13/16 after Goldman Sachs lowered its rating on the stock to "market outperform" from "trading buy"... Interactive entertainment software developer Acclaim Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AKLM)") else Response.Write("(Nasdaq: AKLM)") end if %> slid $1 13/16 to $10 1/2 despite reporting fiscal Q1 EPS of $0.16, a penny ahead of both last year's results and the First Call mean estimate. The company said it has shipped 1.4 million copies of its Turok 2: Seeds of Evil game since the product was launched last month, nearly eclipsing the entire 1.5 million unit sales total of its predecessor, Turok: Dinosaur Hunter.
Semiconductor assembly and test equipment developer Aetrium Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATRM)") else Response.Write("(Nasdaq: ATRM)") end if %> slid $1 3/4 to $10 3/8 after saying it will report a fiscal Q4 loss of $0.21 per share stemming from the establishment of a $1 million loss reserve to account for a dispute with a customer over past-due invoices. Analysts had been expecting a net loss of $0.14 per share, according to the firm... Analog and mixed-signal integrated circuits maker Exar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EXAR)") else Response.Write("(Nasdaq: EXAR)") end if %> slipped $2 1/4 to $14 3/4 after warning that its fiscal Q3 EPS will come in between $0.05 and $0.07, missing the First Call mean estimate of $0.17... Disposable latex gloves maker Safeskin Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFSK)") else Response.Write("(Nasdaq: SFSK)") end if %> was burned $1 1/4 to $22 1/2 after saying it will take $16 million in charges in Q4 to close manufacturing facilities and write off capitalized costs from a past financing deal.
Entertainment giant Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> fell $2 to $36 after Brown Brothers Harriman lowered its short-term rating to "neutral" from "buy." Also, an analyst at Schroder & Co. cut the firm's fiscal Q1 EPS estimate to $0.23 from $0.25, telling Bloomberg News that the box office results from recent Disney films are "pretty ugly"... Paper and building products maker Georgia-Pacific Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GP)") else Response.Write("(NYSE: GP)") end if %> was chopped down $3 7/8 to $64 after Morgan Stanley Dean Witter cut its rating to "outperfom" from "strong buy," citing recent "unrealistic" product price rise expectations by some investors... High-end cognac and luggage maker LVMH Moet Hennessy Louis Vuitton <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LVMHY)") else Response.Write("(Nasdaq: LVMHY)") end if %> slid $2 1/8 to $45 3/8 after saying it "has no intention" of making a tender offer for Gucci Group NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GUC)") else Response.Write("(NYSE: GUC)") end if %>. Yesterday, LVMH confirmed that it has purchased Prada's 9.5% stake in the firm.
Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> was bullied $4 1/8 lower to $68 7/8 as fellow brokerage firm Brown Brothers Harriman cut its rating to "focus buy" from "short-term buy," which is apparently a bad thing... Consumer products giant Colgate-Palmolive <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CL)") else Response.Write("(NYSE: CL)") end if %> dropped $6 1/8 to $78 3/8 after Donaldson, Lufkin & Jenrette lowered its rating to "market perform" from "buy," citing the firm's exposure to the Brazilian market. Avon Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVP)") else Response.Write("(NYSE: AVP)") end if %>, which received a similar downgrade from DLJ on the same concerns, fell $2 1/16 to $39 7/16... Dental and medical healthcare products maker Zila Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZILA)") else Response.Write("(Nasdaq: ZILA)") end if %> sank $4 1/4 to $5 3/8 today. After market close, reports surfaced that an FDA panel rejected the company's new drug application (NDA) for its OraTest oral cancer detection system due to concerns about the product's effectiveness.
FOOL
ON THE HILL
An Investment Opinion
by
Louis Corrigan
What to Make of Compaq's Deal For Shopping.com
The surprising market moves we've seen in Internet stocks over the first two weeks of 1999 can leave one speechless. Over three days, online broadcaster Broadcast.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BCST)") else Response.Write("(Nasdaq: BCST)") end if %> runs up from $85 to $285, largely on the expectation of a stock split. Meanwhile, leading online portal Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %>, valued at about $27 billion on December 31, finds itself worth $51 billion by yesterday afternoon only to end the day worth $46 billion. Today, after another rocking earnings report, it opens down $7.6 billion only to close the day worth $42 billion.
Yet, the most surprising event so far this year may be the Monday morning announcement from Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, the world's top consumer PC manufacturer, saying it plans to acquire troubled online retailer Shopping.com (OTC Bulletin Board: IBUY) for $19 per share, or a total of $220 million. In cash, no less. The deal raises questions not just about Compaq's plans to capitalize on the Internet but about the value of third-tier Internet companies in general. In short, if a blue chip technology company like Compaq is willing to shell out such big bucks for what many short-sellers consider a thoroughly suspect enterprise like Shopping.com, then we may have entered the realm of corporate speculation on the Internet. Or, the naysayers may have badly miscalculated what some of these companies are really worth. In either case, the Shopping.com deal has left some short-sellers who dabble in third-tier Internet names feeling a bit spooked.
Based in Corona Del Mar, California, Shopping.com is an online retailer of over two million brand-name products, such as computers, books, office supplies, and CDs. Its online store consists of 16 categories of merchandise and services available through 1,000 different merchants. Shopping.com acts basically as an online intermediary between consumers and these suppliers. Its e-commerce software allows suppliers to be contacted directly to ship customer orders as they're received by the firm's virtual storefront. This commission model is ultra-light, meaning Shopping.com doesn't have even the inventory or capital requirements of an Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>.
Despite opening for business on July 11, 1997, and scoring an 18-month online real estate deal last January with leading broadband Internet service provider @Home <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATHM)") else Response.Write("(Nasdaq: ATHM)") end if %>, Shopping.com doesn't have much to show for its efforts. While Amazon added a million new customers during its six-week holiday season alone, Shopping.com claims only 100,000 customers total over the past 15 months. For the first nine months of FY98, Shopping.com lost $18.9 million on sales of just $4 million. Moreover, it ended the third quarter with negative working capital and a negative book value.
Even better from a short-seller's perspective was the company's rocky history, part of which I outlined last March around the time the SEC halted trading in the company's shares for 10 days while it investigated possible market manipulation. Shopping.com was taken public by Waldron & Co., a brokerage firm based in Irvine, California. In the middle of the IPO process, Waldron learned that Nasdaq refused to list the company even on its SmallCap market because CEO Robert J. McNulty had violated the securities laws in the past. (Though he neither admitted nor denied the charges, he signed a decree in U.S. District Court on October 10, 1995 that enjoined him from violating the securities laws in the future.) Waldron, then, had to sell the shares only to high-net-worth individuals. Faced with that dilemma, Waldron allegedly engaged in unethical practices that drove some of its own employees to call up the National Association of Securities Dealers to complain. (Nothing has yet come of those charges.)
In any case, McNulty, who owns a third of the stock according to the last proxy, was out as CEO by June. John Markely, a management consultant, was brought in as the new CEO at that time. Of course, Chair Frank Denny, former Chair/CEO of Builders Square, had only joined the board in April. Yet, these management changes weren't the last. Just last week, the company announced another shakeup. Randall Read, former CFO at Stone Container, would become the new chairman while Denny slid into the CEO's position and the company brought in a new CFO. Three CEOs in 8 months suggests Shopping.com is more like a circus act than a cutting-edge online retailer. Indeed, the company's entire history would suggest this is a business one should avoid at all cost.
Shopping.com went public at just $9 a share in November 1997. Even after soaring to nearly $33 a share last spring amidst one wave of Internet fever, the company was only worth $132 million based on the 4 million shares outstanding noted in the company's 10-Q filing. Of course, that underestimated the dilution from the gobs of outstanding warrants, preferred stock, and options. The Compaq bid suggests there are now some 11.6 million fully diluted shares outstanding -- and there's been no stocks split in the interim.
More important, Compaq's bid looks eye-popping based on where Shopping.com has been and given its dire financial straits. In September, it fell as low as $1 a share. As recently as November, even after the broad indexes recovered, it traded for less than $2 a share. Compaq's offer, then, represents not just a premium of nearly $6 per share from the stock's close last Friday. It values Shopping.com at 900% more than investors were willing to pay for the company just two months ago!
Why did Compaq's management decide to move now rather than two months ago, when they surely could have saved shareowners at least $100 million on the purchase. Has Compaq's strategy or the competitive environment really changed so much in so short a time? Perhaps it has. America Online's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> deal for Netscape <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> and the huge valuations being afforded Yahoo! and Amazon suggest that investors are willing to pay quite a bit for viable Internet portals and e-commerce sites. Compaq management seems to think they can play this game, too.
When Compaq acquired Digital Equipment last year, it picked up the highly respected Alta Vista Internet search engine in the process. According to Media Metrix, Alta Vista ranks number 10, ahead of even Amazon.com, among the most highly visited websites, with some 11 million visitors per month. Yet, Compaq has appeared uncertain about how to capitalize on this asset. Rumors have repeatedly floated that Compaq might simply spin-out this search service. The Shopping.com deal appears to be a means for Compaq to sell this spin-out as a true e-commerce contender.
Rod Schrock, general manager of Compaq's consumer products unit, told Reuters that a link to Alta Vista could drive 10 to 25 times more traffic to Shopping.com by the end of this year than it receives today. "We definitely plan to turn Shopping.com into a premiere shopping site on the Internet," Schrock told Reuters. "In our estimation, Shopping.com has one of the most state-of-the-art shopping capabilities" of any site on the Web.
So Compaq appears to be saying, what's $220 million if we can use this company's technology to help create a viable e-commerce portal that we can take public amidst the current Internet frenzy. No doubt, it could prove a smart business deal even if it looks to some like a game of corporate speculation on the current Internet frenzy. Nonetheless, at least one short-seller who says he's never been short Shopping.com still thinks Shopping.com was merely a "stock promotion." He argues that Compaq "probably hasn't done much due diligence" on the company. That's something to keep in mind if Compaq does spin-out its Internet business. Given Shopping.com's history, it would simply be surprising if it's really worth what Compaq is paying for it.
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