Tuesday, April 27, 1999
DJIA 10800.21 +81.62 (+0.76%) S&P 500 1361.93 +1.89 (+0.14%) Nasdaq 2617.11 -34.94 (-1.32%) Russell 2000 434.82 -0.15 (-0.03%) 30-Year Bond 95 21/32 +12/32 5.55 Yield

An Investment Opinion
by Alex Schay

Lots of Online Tickets

Discount purveyor of airline tickets Cheap Tickets (Nasdaq: CTIX) rose $5 1/8 to $46 7/8 after reporting a 3780% increase in year-over-year Q1 net earnings and earnings per share of $0.05, versus a loss of $0.01 per share in the prior-year period. Run rate revenue came in at $242 million, and "a major factor" contributing to the firm's expanding top line was Internet distribution at cheaptickets.com. Gross online bookings increased $18 million to $20.3 million in the first quarter from $2.2 million in the same quarter in 1998.

The online business added about 332,000 new registrants in the quarter, bringing the total number of regular users to more than 750,000 compared with 400,000 registered users added in 1998. Notice that the firm is not incorporated as CheapTickets.com, but was founded in 1986 (online since October 1997) and acknowledged that the opening of its fourth call center also contributed to the strong top line growth.

Soon the excess capacity seat business will see another pure play public firm enter the fare wars, Lowestfare.com filed for an initial public offering in mid-March. The Carl Icahn firm -- created to take advantage of the "cheap tickets" that Icahn can acquire through TWA until 2003, thanks to his investment settlement four years ago -- reported that since inception (through the end of March 1999) lowestfare's total gross bookings grew from $116.9 million in 1996 to $232.7 million in 1998, while online gross bookings grew from $12,000 in 1996 to $13.2 million in 1998. One key variable in this type of business is the ability to continue to get favorable inventory as the pace of competition and the number of entrants to the business continues to expand. (Icahn's TWA agreement ends in 2003, and Cheap Tickets doesn't have long-term contracts with airlines.)

One chief advantage for a competitor like Priceline.com (Nasdaq: PCLN) is in its auction structure -- which inherently forces consumers to compete against each other, all for the benefit of the seller where the highest bid rules (invariably at no more than 30% below quoted prices for Priceline's airfares, unless the firm purposely sells below cost for market expansion purposes). Priceline recently reported the magic million customer mark in a little over a year -- even faster than eBay's initial growth -- which validates the compelling, competitive element of the business model. It's anyone's guess if Sabre (NYSE: TSG) will bring Travelocity public -- with $285 million in 1998 revenue -- with almost 83% of Sabre's shares owned by AMR Corp. (NYSE: AMR). Other competitors on the periphery that figure in the sky scene include Preview Travel (Nasdaq: PTVL), Biztravel.com, Expedia (which is operated by Microsoft), Internet Travel Network, and Trip.com.


Messaging, voice mail, and enhanced calling card systems designer Brite Voice Systems (Nasdaq: BVSI) rose $2 7/32 to $12 25/32 after agreeing to be acquired by call center automation systems maker InterVoice (Nasdaq: INTV) for $13.40 per share in cash and stock. To listen to a replay of the merger conference call, dial (719) 457-0820 and enter the code 679296.

Toy retailer Toys "R" Us (NYSE: TOY) skipped its way $1 5/8 higher to $23 7/16 after announcing plans to become "the clear leader" in the online toy retailing market by Q4 of this year. As part of the plan, the company is establishing toysrus.com as a separate subsidiary with a new website to be launched in Q2. eBay (Nasdaq: EBAY) venture capital backer Benchmark Capital is investing in the new online subsidiary, which will be complemented by a recently acquired 500,000 square foot automated distribution facility in Memphis, Tennessee.

Bally's and Grand casinos operator Park Place Entertainment (NYSE: PPE) rolled $1 1/2 higher to $10 5/8 after agreeing to acquire Caesars World and other gaming assets from hotel and casino operator Starwood Hotels & Resorts (NYSE: HOT) for $3 billion in cash. Upon the completion if the deal, Park Place will have interests in a total of 29 casinos around the world with about 28,000 hotel rooms. Park Place expects the acquisition will add to its earnings in the first year. Starwood fell $3/4 to $34 1/4.

Diversified energy company CMS Energy Corp. (NYSE: CMS) charged ahead $2 5/16 to $43 9/16 on news that it will replace Union Camp Corp. (NYSE: UCC) on the Standard & Poor's 500 Index. Insurer AFLAC (NYSE: AFL), which will take Fred Meyer's (NYSE: FMY) place on the same list, rose $4 1/16 to $55 3/8.

PC and computing products maker Apple Computer (Nasdaq: AAPL) climbed $3 to $43 15/16 after Goldman Sachs raised its rating on the firm to "recommended list" from "market perform."

Online auctioneer eBay (Nasdaq: EBAY) was bid up $13 to $222 after last night reporting Q1 EPS of $0.05, up from $0.01 a year ago. Analysts had predicted EPS of $0.02. Revenues gained 469% to $34 million from $6 million year-over-year on increased trading on the company's main website, though eBay's gross profit margin fell to 85% from 89%. You can listen to a replay of eBay's earnings conference call from yesterday at http://www.prnewswire.com.

Deep-discount retailer Dollar General (NYSE: DG) marched ahead $3 1/8 to $35 5/8 after its board approved the repurchase of up to 5 million of the firm's outstanding shares. The company also set a five-for-four stock split, payable on May 24.

Direct mail marketing services company ADVO Inc. (NYSE: AD) added $1 3/4 to $21 3/4 following a Morgan Stanley Dean Witter upgrade to "outperform" from "neutral."

Earnings Movers

Business Objects (Nasdaq: BOBJ) up $1 1/8 to $28 3/8; Q1 EPS: $0.17 vs. $0.08 last year; estimate: $0.13

Cymer Inc. (Nasdaq: CYMI) up $1 3/4 to $21 11/16; Q1 EPS: loss of $0.08 vs. earnings of $0.09 last year; estimate: loss of $0.09

Shaw Industries (NYSE: SHX) up $1 1/2 to $20 1/4; Q1 EPS: $0.28 vs. $0.15 last year; estimate: $0.24

StarTek (NYSE: SRT) up $1 1/4 to $17 11/16; Q1 EPS: $0.18 vs. $0.11 last year; estimate: $0.13

Terex Corp. (NYSE: TEX) up $1 1/2 to $30 7/8; Q1 EPS: $1.16 vs. $0.65 (before charges) last year; estimate: $0.92

U.S. Foodservice (NYSE: UFS) up $2 3/8 to $42 7/8; fiscal Q3 EPS: $0.34 vs. $0.29 (excluding charges) last year; estimate: $0.34


Entertainment giant Walt Disney Co. (NYSE: DIS) fell $1 9/16 to $33 7/16 after saying that while it expects second-half operating results to be "somewhat" better than last year's, "the improvements are not expected to be sufficient to overcome the declines experienced in the first six months of the year." Fiscal Q2 EPS was $0.13, down from the year-ago $0.17 and flat with estimates. Fiscal Q1 EPS missed the 1998 mark as well.

Online transaction processing services provider Pegasus Systems (Nasdaq: PEGS) was winged for a loss of $7 1/4 to $35 3/8 following this morning's announcement of plans to sell 1.75 million shares of company stock to the public, boosting the total outstanding by approximately 17%. Last night, Pegasus reported Q1 EPS of $0.13, up from $0.09 last year and a penny ahead of estimates.

Movie studio Metro-Goldwyn-Mayer (NYSE: MGM) flickered down $1 5/16 to $14 1/2 this morning. The company named director Alex Yemenidjian its chairman and CEO, replacing Frank Mancuso. The company also plans a $500 million rights offering to its shareholders. MGM's Q1 loss was $2.03 per share, well off last year's $0.28 loss.

Greensboro, N.C.-based cellular phone systems operator Vanguard Cellular Systems (Nasdaq: VCELA) dropped $4 to $23 1/8 on news that it will be replaced by Gilead Sciences (Nasdaq: GILD) in the Standard & Poor's MidCap 400 Index after the market's close on Friday. Vanguard is being acquired by AT&T Corp. (NYSE: T).

Engineering and construction services firm Foster Wheeler Corp. (NYSE: FWC) lost $1 1/4 to $13 5/8 this morning as Donaldson, Lufkin & Jenrette reportedly lowered its rating on the stock to "underperform" from "market perform." The company yesterday morning reported Q1 EPS of $0.38, $0.02 better than estimates and a nickel ahead of last year's $0.43 mark. New orders booked for the quarter fell 37% to $910.5 million. Foster Wheeler said its engineering and construction group has met with a competitive pricing environment, while its energy equipment group cited continued project delays in several markets.

Internet systems management and Web hosting firm Exodus Communications (Nasdaq: EXDS), which this morning announced a new Internet service provider (ISP) program, gave up $3 11/16 to $93 1/2.

Internal computer networks designer International Network Services (Nasdaq: INSS) tumbled $2 1/16 to $38 5/8 after the company said it plans to sell a total of 3.5 million shares to the public, 2 million by the company and the balance by shareholders. That would represent a more than 6% boost to the total shares outstanding. Fiscal Q3 EPS, announced last night, was $0.14, double last year's result and a penny ahead of estimates.

Fingerprint identification systems designer Identix Inc. (AMEX: IDX), which yesterday closed its acquisition of Identicator Technology, retreated $7/16 to $10 13/16 this morning. The company said fiscal Q3 losses were $0.03 per share, flat with last year but a penny better than First Call's two-analyst consensus projection.

Earnings Movers

Banyan Systems
(Nasdaq: BNYN) down $1 1/2 to $13 13/16; Q1 EPS: $0.02 vs. $0.02 last year; estimate: $0.03 (one analyst)

Dendrite International
(Nasdaq: DRTE) down $1 1/4 to $28 7/8; Q1 EPS: $0.15 vs. $0.07 last year; estimate: $0.12

DoubleClick Inc. (Nasdaq: DCLK) down $19 to $152 5/8; Q1 EPS: loss of $0.13 vs. loss of $0.21 last year; estimate: loss of $0.13

Insight Enterprises (Nasdaq: NSIT) down $1 3/4 to $28; Q1 EPS: $0.26 vs. $0.18 last year; estimate: $0.24

Manhattan Associates (Nasdaq: MANH) down $3/4 to $8 1/4; Q1 EPS: $0.01 vs. $0.06 last year; estimate: $0.07

Market Guide
(Nasdaq: MARG) down $11/16 to $19 13/16; fiscal Q4 EPS: $0.07 (before items) vs. $0.09 last year; estimate: $0.08

PSINet Inc. (Nasdaq: PSIX) down $2 1/2 to $60 1/2; Q1 EPS: loss of $1.11 vs. loss of $0.51 last year; estimate: loss of $1.20


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