FOOL PLATE SPECIAL
An Investment Opinion
by Rick Aristotle Munarriz

Reach Out and CommTouch Someone

Another day, another Internet initial public offering. Outsourced e-mail and messaging solutions specialist CommTouch Software (Nasdaq: CTCH) is scheduled to begin trading today after being priced last night at $16 a share. The third time was the charm for the company, which put off its market debut twice earlier this month.

CommTouch casts a wide 'Net net, providing Web-based e-mail services to 70,000 sites claiming a total of 6 million end-users. Branded e-mail seems to be a hot trend in cyberspace and CommTouch has already assisted popular portals like Excite, FortuneCity and now Go2Net (Nasdaq: GNET) -- who teamed up with Paul Allen's Vulcan Ventures to make a $20 million investment in CommTouch last week in connection with this morning's offering.

International Data Corporation projects that 8 billion daily email messages will be flying about three years from now. Sites "Powered by CommTouch" generally provide free e-mail to create community and brand loyalty. Granted, quite a few of these e-mailboxes may be cobweb-ridden as patrons move on or rely on alternate vanity domains. Still, it is certainly a large amount of territory for the Israeli-based CommTouch to claim. The company, which also has an office in California, hopes to grow sales by selling advertising space and premium services like pager notification and e-mail forwarding.

Of course, the problem here is that cybersurfers are reaping the benefits of the competitive nature of 'Net frill providers. Email is generally seen as a free ISP byproduct and if someone is charging for a premium service you can bet that someone else is giving it away to lure new users. That's right, CommTouch is not alone. On the corporate level, many companies simply do not outsource their email. On the retail level, the company is fighting against well-funded juggernauts like Microsoft (Nasdaq: MSFT) and America Online (NYSE: AOL).

Sales for CommTouch are low but growing quickly. Revenues for the March quarter were just $346,000 but almost eclipsed the $389,000 that the company rang up through all of last year. CommTouch has yet to turn a profit, with losses widening every single year since at least 1996. This year should not break with tradition as the company reported a $2.3 million deficit in its first three months (it lost just $4.4 million in 1998).

Between the $20 million Go2Net and Vulcan capital infusion and the $45 million in proceeds that is being raised in today's deal, CommTouch should be able to stomach the quarterly losses in the near-term. It's an interesting new chapter for a company that just eight years ago began as nothing more than a chicken coop in Israel. That's right, some facts are stranger than eMeringue.Com fiction. Despite being offered at more than 300 times trailing sales, investor enthusiasm appears strong. Allen's last minute backing practically assures it. But will the company eventually earn its valuation? Will shareholders eventually care?

UPS

Online retailer Amazon.com (Nasdaq: AMZN) tacked on $5 1/4 to $122 5/8 after launching two new stores -- one selling toys and games and another selling electronics such as digital camcorders, computer products, and TVs. In an interview with Bloomberg News, founder and CEO Jeff Bezos called toys and electronics two of the most "poorly served" product areas for consumers.

Rule Breaking biotechnology company Amgen (Nasdaq: AMGN) picked up $5 9/16 to $71 7/8 after reporting Q2 EPS of $0.50, up from $0.41 a year ago and ahead of the First Call mean estimate of $0.46. For the fiscal year, the company guided investors to expect EPS at the "high end" of the $1.90 to $1.95 range, with sales growth of its red blood cell stimulating drug Epogen "in the mid-20s" and growth for its white blood cell drug Neupogen "in the high single- to low double-digit range." The company also said it will seek FDA approval for its IL-1ra rheumatoid arthritis drug by the end of the year.

Antiviral pharmaceuticals developer ViroPharma (Nasdaq: VPHM) gained $1 1/16 to $10 5/16 after saying the Phase II program for its pleconaril drug yielded "clinically and statistically significant" reductions in the time it takes patients to get over the disease symptoms of viral respiratory infection (VRI), a severe form of the common cold.

Passive electronics components manufacturer AVX Corp. (NYSE: AVX) surged $1 1/2 to $28 1/8 after turning in fiscal Q1 EPS of $0.20, flat with last year's results but ahead of the Zacks mean estimate of $0.12. Chairman and CEO Dick Rosen said the company's business "has picked up" and its product prices "have stabilized." Donaldson, Lufkin & Jenrette raised its rating on the firm to "buy" from "market perform."

Electronic design automation tools maker Avant! (Nasdaq: AVNT) vaulted $1 higher to $14 after posting Q2 EPS of $0.43, up from $0.35 a year ago and ahead of the Zacks mean estimate of $0.40. Revenues came in at $70 million, up 30% year-over-year and up 6% sequentially.

Web-based business resource management applications developer Clarus Corp. (Nasdaq: CLRS) moved up $1 1/32 to $9 11/16 following a BancBoston Robertson Stephens upgrade to "buy" from "hold."

E-mail and advanced messaging services firm Mail.com (Nasdaq: MAIL) delivered a $1 3/8 gain to $25 13/16 after being rated a "buy" in initial coverage by at least four brokerage firms this morning, including two underwriters of its initial public offering last month.

Information management software company BackWeb (Nasdaq: BWEB) climbed $4 1/16 to $34 after reaching an agreement with mobile communications technologies company Ericsson (Nasdaq: ERICY) to embed its Polite Agent technology in Ericsson's Internet Advertiser product for Internet service providers (ISP).

Office and computer products supplier Corporate Express (Nasdaq: CEXP) advanced $13/32 to $8 31/32 after agreeing to be acquired by Dutch office products supplier Buhrmann NV for $1.1 billion in cash, or $9.70 per share. The purchase price represents a 13% premium to Corporate Express' closing price of $8 9/16 per share yesterday.

DOWNS

Online advertising software provider NetGravity (Nasdaq: NETG) was pulled down $1 3/16 to $26 5/16 after DoubleClick (Nasdaq: DCLK) said it will buy the company for $530 million in stock. NetGravity shareholders will receive 0.28 of a DoubleClick share for each NetGravity share. Based on yesterday's close, the deal values NetGravity at $26.32 a share, which is actually less than NetGravity's Monday closing price of $27.50, though it's a 26% premium over NetGravity's 30-day average trading price.

Online music retailer CDnow (Nasdaq: CDNW) fell $1 11/16 to $20 9/16 on news that the company is merging with Columbia House, the music and video club direct marketer equally owned by Sony Corp. (NYSE: SNE) and Time Warner (NYSE: TWX). The as-yet-unnamed new entity will be 37%-owned by Sony, 37%-owned by Time Warner, and 26%-owned by CDnow. For more on the news, head back to this morning's Breakfast With the Fool.

Baked goods company Flowers Industries (NYSE: FLO) crumbled $3 3/8 to $18 after saying Q2 EPS will be below Wall Street's $0.10 consensus estimate -- that projection was flat with year-ago results -- because of production realignment costs and promotional expenses at its Mrs. Smith's Bakeries business unit. The company's other units, Keebler Foods (NYSE: KBL) and Flowers Bakeries, are doing fine. Keebler stock fell $1 5/16 to $28 5/16.

Men's and women's casual and dress sportswear maker and marketer Tropical Sportswear International (Nasdaq: TSIC) wilted $10 11/16 to $16 11/16 after saying last night that it expects to report fiscal Q3 EPS of $0.40 to $0.42, well off the $0.67 estimate one analyst gave First Call. Trouble processing orders at the company's Tampa distribution center -- which led, at the end of the quarter, to cancellation of approximately $6.5 million in orders and the deferral of $4.5 million more -- hurt results as the May installation of a new inventory management and customer fulfillment system and construction at the Tampa facility proved upsetting.

Logistics software company Catalyst International (Nasdaq: CLYS) misplaced $5 1/2 to $13 3/4 on news that it expects "near break-even" EPS for Q2 because of lower margins caused by sagging service revenues, research and development expenditures, and a severance charge for the company's former CFO. Six analysts polled by First Call were looking for EPS of $0.06. The company expects service revenues to rebound in Q3.

Enterprise software developer Landmark Systems Corp. (Nasdaq: LDMK) gave away $3 5/32 to $8 1/32 after saying it expects to turn in Q3 EPS of between $0.09 and $0.11 when it reports results July 20. Two analysts gave First Call a $0.16 consensus estimate. The company's sales cycles have been longer then expected, and the company believes that will be compounded by further weakness caused by customers' Year 2000 worries.

Internet networking company Hertz Technology Group (Nasdaq: HERZ) retreated $1 25/32 to $6 1/4 today after CEO Eli Hertz said in a statement late in yesterday's session that he knew of no reason for the stock's recent rise. After closing at $8 1/16 last night, the shares were up nearly 90% in the past two trading days.

Telecom and medical equipment external power conversion products maker Ault Inc. (Nasdaq: AULT) dimmed $1 3/4 to $6 1/2 after saying it expects fiscal Q1 EPS to come in below last year's $0.11 because of temporary order deferrals by one of the company's cable modem original equipment manufacturer customers. The shares fell despite CEO Frederick Green's assertion that the disappointment would likely be recouped in subsequent quarters, as well as news that fiscal Q4 EPS is seen beating last year's $0.10 by $0.04 to $0.06.

Rural acute care hospitals operator Health Management Associates (NYSE: HMA) descended $3 5/16 to $8 after saying it sees slower-than-expected admission growth in the latter part of fiscal Q3. The company directed investors to prepare for EPS "approximately even" with last year's $0.15, which would miss the $0.18 projected by First Call's analyst survey.

Commercial cooking and refrigeration equipment company Specialty Equipment Cos. (NYSE: SEC) cooled $2 11/16 to $28 1/4 following the announcement that it expects Q2 EPS to disappoint because of slow refrigerated equipment sales to the soft drink industry. Specialty now projects EPS of $0.53 or $0.54, below the $0.62 consensus of two analysts polled by First Call.

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Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool Editing Brian Bauer (TMF Hoops), another Fool Bob Bobala (TMF Bobala), a Fool's Fool Jennifer Silber (TMF Amused), Fool at last