<THE LUNCHTIME NEWS>
Monday, December 28, 1998
THE MARKET MIDDAY
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FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer

E*Trade Surges on Destination News

Online brokerage E*Trade Group (Nasdaq: EGRP) rocketed ahead this morning, gaining $13 1/4 to $58 1/4 after announcing that half a million people have signed up for its Destination E*Trade website since its official launch in September. Not to confuse things -- this is the company's investment data site -- today's report was not about new accounts for the brokerage. But the former is a very good leading indicator of the latter, and these are America Online (NYSE: AOL)-like numbers, circa 1996.

When one looks at the investment thesis behind the top online companies, it's not just the number of page views that is important. It's the number of page views and membership growth as leading indicators of revenue growth that are most important. With something like Amazon.com (Nasdaq: AMZN), the thesis that it's just a low-margin retailer is quickly being eclipsed by the idea that it can build additional high-margin revenues by leasing out virtual retail space. The goal is not to generate billions of page views in and of itself, but to leverage the customers behind all those clicks into something larger. Same thing with AOL circa 1996.

With the sale of 27.2% of the company earlier this year to Japanese holding company SOFTBANK, which owns substantial chunks of Yahoo! (Nasdaq: YHOO) and Ziff-Davis Inc. (NYSE: ZD), E*Trade appears to have sold well. Its name is plastered all over ZDNet, though one should not necessarily expect huge synergies with Yahoo! Online brokerages are great customers for anyone with qualified investors among their customer bases, and Yahoo!'s not going to just hand over space at a discount. However, as a member of the SOFTBANK info keiretsu, E*Trade should definitely continue to benefit. At the current price of over $3,200 per brokerage account and E*Trade Destination member, though, is the value still there? The market has pretty nicely discounted this growth of late. Depending upon churn rate, the number of real paying customers E*Trade can get out of its Destination members, and the quality of the accounts it can gain, E*Trade still offers a pretty compelling value.

UPS

In-flight catalog and online retailer SkyMall Inc. (Nasdaq: SKYM) soared $20 3/16 to $32 3/4 after saying its Internet sales have tripled to about $1 million so far in the fourth quarter compared to a year ago, mirroring a three-fold increase in the number of hits at its skymall.com website during the same span. For fiscal 1998, the company expects total revenues to rise 7% to $65 million from last year's $60.8 million.

Biotechnology company Cephalon (Nasdaq: CEPH) gained $1 7/16 to $9 5/8 after the FDA approved its Provigil drug for treating the "excessive daytime sleepiness" associated with the sleeping disorder narcolepsy, which affects about one out of every 2,000 people in the U.S. The non-amphetamine Provigil is the first Cephalon drug to gain marketing approval in the U.S.

DaimlerChrysler AG (NYSE: DCX) sped ahead $4 5/8 to $98 13/16 after saying it expects 1998 revenues to increase by 13% to $148 billion and 1998 earnings to "reach a significantly higher level" than pro forma combined figures for 1997 for Daimler-Benz AG and Chrysler Corp. The newly combined automaker estimates unit sales will total 4.4 million vehicles this year, up from a combined 3.6 million last year and topping an earlier estimate of 4.2 million. DaimlerChrysler expects to see "the first substantial positive effects of the merger" in 1999.

Computer systems integration and maintenance services firm Unisys Corp. (NYSE: UIS) picked up $1 5/16 to $35 after Goldman Sachs placed the company on its "recommended list." Goldman had started coverage of the stock just last month with a "market outperform" rating.

Online live event ticketing and city guide service Ticketmaster Online CitySearch (Nasdaq: TMCS) tacked on $6 1/2 to $72 after Bear Stearns started coverage of the stock with an "attractive" rating and NationsBanc Montgomery Securities gave it an initial "buy" rating. Both brokerages were underwriters for the company's initial public offering earlier this month.

Teen apparel retailer dELiA's (Nasdaq: DLIA) rose another $1 5/8 to $19 3/4 after climbing 67% on Thursday following news of its opening of a "Best of dELiA's" online retail store on Yahoo!'s (Nasdaq: YHOO) shopping channel. Separately, Yahoo! posted a $31 11/16 gain of its own to $278 13/16 this morning.

Aerospace and industrial fasteners maker Kaynar Technologies (Nasdaq: KTIC) secured a $2 3/4 gain to $27 3/8 after agreeing to be acquired by fellow fastener manufacturer Fairchild Corp. (NYSE: FA) for about $267 million, plus $98 million of assumed debt. The purchase price works out to $28.75 per Kaynar share, which is a 17% premium to the company's closing share price of $24 5/8 per share on Thursday. Fairchild moved up $3/4 to $14 5/8 as well.

E-TEK Dynamics (Nasdaq: ETEK), which makes components for wavelength division multiplexing and optical amplification systems, added $1 7/8 to $24 3/4 after Goldman Sachs started coverage with a "market outperform" rating. Goldman was an underwriter for the company's initial public offering earlier this month.

Active Apparel Group (Nasdaq: AAGP), which markets activewear under the Everlast, Converse All Star, and MTV's The Grind brand names, leapt $5 1/2 to $6 3/4 this morning after announcing the launch of its e-commerce website at www.everlastusa.com. As of 11:00 a.m. Eastern time, the website was not yet functional for this Fool.

DOWNS

Telecommunications technology company Premisys Communications (Nasdaq: PRMS) lost $1 5/16 to $8 9/16 after it said it expects to report fiscal Q2 EPS of between $0.08 and $0.10, missing the Street's $0.16 consensus estimate because of lower-than-expected orders taken by its direct sales force in international markets. The company also said CEO Nick Williams is recovering from frostbite and an interim chief may be appointed.

Mega-retailer Wal-Mart (NYSE: WMT) slipped $1 3/4 to $79 3/8 even though the company is comfortable with Q4 EPS estimates -- the market currently expects a $0.65 profit when the company reports earnings Jan. 7 -- thanks to strong December sales. However, the company also said it doesn't expect to match last year's 6.4% same-store sales jump for January.

Computer mag publisher Ziff-Davis (NYSE: ZD) fell $2 5/8 to $18 1/8 after Morgan Stanley Dean Witter cut its rating on the stock to "neutral" from "outperform." Analyst Doug Arthur based the revision on a recent rise in the company's stock price stemming from its filing of an IPO for a tracking stock that will follow its Internet division. The Fool's Louis Corrigan flipped through Ziff-Davis' pages in mid-October.

Integrated energy company KN Energy (NYSE: KNE) leaked $2 5/16 to $36 after it said full-year 1998 earnings are expected to fall between 20% and 30% below the market's $2.61 per share estimate because of, among other things, a warm winter and high inventories throughout the industry. KN also anticipates a pretax charge of as much as $30 million in Q4.

Technology development company CVF Technologies (AMEX: CNV), which enjoyed a nice pop of $1 13/16 on Christmas Eve following news of its plans to launch a website selling nutritional and herbal supplements, gave back $5/8 to $5 3/8 this morning.

The rollercoaster ride that is Zapata Corp. (AMEX: ZAP), the fish oil and Web portal company, continued today as its stock added to Friday's losses, shedding $1 5/8 to $10 3/4. Zapata's hills and valleys were documented in a July Daily Double and, four months later, a Daily Trouble.

Water well drilling and maintenance company Layne Christensen (Nasdaq: LAYN) lost $1/2 to $7 1/2 after it said it expects a fiscal Q4 loss of between $0.17 and $0.21 per share because of slowing demand for its mineral exploration products and services. Two analysts surveyed by First Call currently expect a $0.02 loss.

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Contributing Writers
Yi-Hsin Chang (TMF Puck), a Fool
Brian Graney (TMF Panic), another 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