Monday, March 29, 1999
DJIA 9974.59 +152.35 (+1.55%) S&P 500 1306.49 +23.69 (+1.85%) Nasdaq 2469.86 +50.69 (+2.10%) Russell 2000 399.00 +5.08 (+1.29%) 30-Year Bond 94 13/32 -20/32 5.64 Yield

An Investment Opinion
by Warren Gump

Let the Battle Begin!

Everyone knows that competition on the Internet will stiffen as companies try to emulate the most successful business models. Setting the stage for what could be the one of the most interesting battles over the next year or so, Amazon.com (Nasdaq: AMZN) announced that it is going to start an online auction service to compete with eBay (Nasdaq: EBAY). One feature Amazon plans to offer that is not currently available on eBay is fraud protection, offering to reimburse customers their purchase price up to $250 on items that are ordered but never received. Internet retailing king Amazon gained $10 9/16 per share to $149 5/8 this morning, while top-dog Internet auctioneer eBay was bid down $3 3/4 to $150 3/4.

Amazon's new auction site will be one of the first instances where one Internet segment leader takes on another in the competitor's home court. Up to this point, investors have believed that eBay was invincible because its established customer base of roughly 2 million would perpetuate its leadership. Higher customer counts were expected to lead to more items up for auction, in turn resulting in even more customers. That makes a lot of sense, but what happens when they have to compete with Amazon.com and its 8 million customers? They all may not be customers looking for an auction, but that's a lot of eyeballs.

Just because Amazon has quickly become the leading Internet seller of books, music, and video, assuming that it will automatically be a winner in the auction space is a bit presumptuous. In retailing, the retailer directly controls what products are offered, whereas in the auction business, the auction firm must persuade sellers to choose its site. While Amazon will reportedly start its site off with tens or hundreds of thousands of auctions, eBay has some 1.8 million auctions per day. Amazon will have to fight to increase the breadth of its auction offerings. Of course, its very popular site and excellent management team provide powerful artillery.

Watching the evolution of this auction battle should be helpful in determining characteristics that are integral to success on the Internet. Can Internet sites leverage themselves into new businesses by virtue of controlling high traffic sites? How important is having an established customer base in the Internet world? What value does an Internet brand carry when moving into new spaces? Any investor interested in the Internet space should closely watch this battle.


Telecommunications equipment maker Lucent Technologies (NYSE: LU) rang up $4 1/4 to $106 5/16 after signing a $1 billion contract with former parent AT&T (NYSE: T) to supply equipment and services to AT&T's third generation (3G) DigitalPCS time division multiple access-based (TDMA) wireless network.

Commercial and residential lighting products maker Juno Lighting (Nasdaq: JUNO) shined $3 higher to $23 1/2 after agreeing to a buyout offer from privately held investment firm Fremont Partners. Under the deal, Fremont will buy 87.1% of the company's outstanding shares at $25 per share in cash. The remaining 12.9% of Juno's shares will continue to be held by existing shareholders.

Integrated oil and gas firm Atlantic Richfield (NYSE: ARC) gained $7 1/8 to $72 1/2 after confirming that it is in talks with BP Amoco (NYSE: BPA) about a "possible combination transaction." BP Amoco rose $3 13/16 to $104 1/4 on the news, which was examined in greater detail in this morning's Breakfast With the Fool.

Railroads and mutual funds operator Kansas City Southern Industries (NYSE: KSU) picked up $2 13/16 to $56 1/2 on news that it will replace AMP Inc. (NYSE: AMP) on the Standard & Poor's 500 Index. AMP is merging with Tyco International (NYSE: TYC). Residential carpet and rugs maker Mohawk Industries (NYSE: MHK), which will replace Kansas City Southern on the S&P MidCap 400 Index, rose $2 1/8 to $28 1/8.

Computer network directory and messaging products company Banyan Systems (Nasdaq: BNYN) jumped $1 11/16 to $13 5/16 after fiber optic network operator Qwest Communications (Nasdaq: QWST) said it will jointly market a suite of Internet-based communications services to Banyan's Switchboard online white and yellow pages directory.

Online training services provider Computer Literacy (Nasdaq: CMPL) added $3 1/2 to $24 1/4 after announcing it will change its name to Fatbrain.com as it expands beyond its traditional e-commerce base of providing technical training tools and into offering professional tools for many industries.

British chemical giant Imperial Chemical Industries (NYSE: ICI) advanced $2 to $35 7/8 after saying it is in discussions with privately held U.S. chemicals firm Huntsman Corp. and others concerning the sale of some of its low-margin operations in an effort to focus on its higher-margin specialty chemicals business.

Manufactured housing company Champion Enterprises (NYSE: CHB) manufactured a $1 9/16 gain to $20 1/4 after a positive article in Barron's said the company is "poised for continued solid growth in sales and earnings" as it expands its network of manufactured home retailers.

Telecommunications services company McLeodUSA Inc. (Nasdaq: MCLD) moved up $2 9/16 to $41 9/16 after Morgan Stanley Dean Witter raised its rating to "strong buy" from "outperform."

Baker Hughes (NYSE: BHI) gained $1 to $24 13/16 and Halliburton (NYSE: HAL) tacked on $2 7/16 to $40 9/16 after Morgan Stanley Dean Witter raised its opinions of both oil services firms to "strong buy" from "outperform."


Global satellite and paging company Iridium World Communications (Nasdaq: IRID) gave up $2 9/16 to $19 1/16 this morning. The company said CFO Roy Grant will resign April 16 citing "personal reasons." Iridium also said it received a 60-day waiver of several covenants of its $800 million credit facility. It's been having trouble rolling out its global service, purportedly because of distribution and staffing problems, as it said in a statement earlier this month in which it warned that the credit pact might be under fire.

Online car buying website operator autobytel.com (Nasdaq: ABTL) slowed $2 1/2 to $37 3/4 after speeding to a $17 1/4 gain on Friday, its first day of trading following its IPO of 4.5 million shares at $23 each. Rural markets Internet services provider OneMain.com (Nasdaq: ONEM), meanwhile, stretched its Friday $7 7/16 loss by $2 5/16 to $29 11/16 this morning. The company began trading Thursday with an IPO price of $22 per ticket.

Less invasive medical devices maker Perclose Inc. (Nasdaq: PERC), downgraded to "neutral" from "attractive" at Vector Securities because of the stock's recent rise, shed $8 3/8 to $32 3/4 this morning. Vector also lowered its EPS estimates for Perclose based on a higher tax rate of 40%, up from 35%, and higher expenses associated with the hiring of new clinical sales specialists. Vector lowered its EPS estimates for the fiscal year (ending Wednesday) by $0.03 to $0.31. It also cut its estimates for fiscal 2000 to $0.91 from $1.03 and for 2001 to $1.37 from $1.46. First Call's consensus EPS projections for those three periods are currently $0.30, $0.93, and $1.42, respectively.

Network security detection software maker ISS Group (Nasdaq: ISSX) lost $4 3/4 to $78 1/2 after this week's issue of Barron's included a report on the company suggesting that much of the company's growth in recent years "owes more to optimism about ISS's potential than to any financial fundamentals." Increased competition is in the offing, in part from the likes of Cisco Systems (Nasdaq: CSCO) and Network Associates (Nasdaq: NETA), which have acquired privately held companies with products rivaling ISS's, according to Barron's.

Online auction operator eBay (Nasdaq: EBAY) dropped $3 3/4 to $150 3/4. The company today reported a three-year alliance with Warner Bros. Online, a division of Time Warner Entertainment (NYSE: TWX), linking Warner's entertainment sites to eBay.

Controlled-release drug maker Alza Corp. (NYSE: AZA) gave up $4 1/4 to $41 5/8 after Morgan Stanley Dean Witter lowered its rating on the company to "outperform" from "strong buy" because of concerns about a slower-than-expected launch of its Ditropan XL drug and later-than-expected acquisition of cancer drug developer Sequus Pharmaceuticals (Nasdaq: SEQU).

Internet transaction payment system company CustomTracks Corp. (Nasdaq: CUST), which Friday night reported Q4 EPS of $1.60, lost $5/16 to $14 5/8. The company sold all of its operating businesses in 1998, completely reinventing itself after scrapping its plans to sell customized music CDs over the Internet. It's now developing a transaction payment system with eyes on a Q3 launch. Today, Joseph Charles & Associates suspended its price target on the company pending evaluation of the system.

Wireless communications company Nextel Communications (Nasdaq: NXTL), which picked up $4 5/16 on Friday -- reportedly on rumors that the company was a takeover target, possibly of MCI WorldCom (Nasdaq: WCOM) -- returned $1 1/8 to $36 3/4 this morning.

Genesis Health Ventures (NYSE: GHV), which provides healthcare services to the elderly, lost $15/16 to $5 5/8 this morning. The stock added $1 5/8 Friday; the company told the NYSE it wouldn't comment on the move after the exchange asked for information about the jump.


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