Fool.com: Ups and Downs Plus Top News (QuickNews) October 8, 1999

Motley Fool QuickNews

Friday 10/08/99

Closing Market Numbers

DJIA        10649.76  +112.71    (+1.07%) 
S&P 500      1336.02   +18.38    (+1.39%)
Nasdaq       2886.57   +25.87    (+0.90%)
Russell 2000  427.71    -0.40    (-0.09%)
30-Year Bond 99 1/32    -6/32  6.20 Yield

Today's Market Movers:

UPS

Mobile phone maker Ericsson (Nasdaq: ERICY) rose $1 13/16 to $34 after signing $157 million in contracts to help complete the build-out of global standard for mobile communications (GSM) networks for China's Shandong Mobile Communications Corp. and China Unicom. Prudential Securities analyst Luke Szymczak started coverage of the firm with an "accumulate" rating and a 12-month price target of $37 per share.

Online advertising and direct marketing network provider 24/7 Media (Nasdaq: TFSM) jumped $6 7/8 to $46 3/8 on renewed speculation that it is a takeover target. The major merger rumor floating around features DoubleClick (Nasdaq: DCLK) in the role of the potential suitor and was credited to The Silicon Alley Reporter.

Gambling machine operator Jackpot Enterprises (NYSE: J) rolled $1 3/16 to $9 13/16 after Las Vegas Entertainment Network (Nasdaq: LVEN) filed an unsolicited tender offer with the SEC to acquire the company for $11 per share. Jackpot said it is evaluating the offer. Las Vegas Entertainment, which says it is looking to acquire and develop media and gaming properties and hasn't had any revenues in the past two years, raced up $1 9/16 to $5 3/16.

Digital postage company E-Stamp (Nasdaq: ESTM) delivered a $5 3/8 gain to $22 3/8 on its first day of trading after selling 7 million shares at a price of $17 per share in an initial public offering today. Another Friday IPO, Web content management software provider Interwoven Inc. (Nasdaq: IWOV), weaved its way $24 higher to $41.

Satellite-based communications services provider PanAmSat Corp. (Nasdaq: SPOT) shot up $1 7/8 to $38 7/16 after Merrill Lynch analyst Thomas Watts raised his near-term rating on the company to "buy" from "accumulate." Parent Hughes Electronics (NYSE: GMH) also gained $3 to $15/16.

DOWNS

Network multi-protocol packet processors maker Hi/fn Inc. (Nasdaq: HIFN) was crushed for a loss of $36 1/4 to $37 3/4 after the company said two major customers -- reportedly Lucent (NYSE: LU) and Quantum (Nasdaq: QNTM) told the company they will reduce demand for Hi/fn products from previously ordered amounts for the company's fiscal first quarter ending Dec. 31. As a result, Hi/fn expects revenues for the first quarter to be in the range of $10 million, down from Q3's $12.5 million. Hi/fn said it expects Q4 results to come in ahead of First Call's $0.37 consensus estimate.

Travel services provider Preview Travel (Nasdaq: PTVL) gave up $9/16 to $20 9/16 today. The company named Bruce Carmedelle CFO after Thomas Cardy decided to head back to Communication Equity Associates, where he will be COO. For a Foolish take on the company's plans to merge with travel information technology company Sabre Holdings Corp. (NYSE: TSG) and build out Travelocity.com as a new publicly traded company, click here.

Quantum's DLT & Storage Systems Group (NYSE: DSS) enterprise storage moved back $1 7/8 to $11 1/2 today after announcing preliminary fiscal Q2 revenue of $357 million, translating to EPS of $0.34 per share diluted, flat with estimates. President Peter van Cuylenburg said to expect flat revenues and EPS for the following quarter as well. "We expect that the business will return to normal growth rates after the Y2K transition is complete by early calendar year 2000,'' said van Cuylenburg.

Senior housing services company CareMatrix Corp. (Nasdaq: CMDC) was hit for a loss of $2 13/32 to $3 15/32 after the company said it expects Q3 EPS to come in between $0.04 and $0.06 -- and between $0.75 and $0.80 for the full year (not counting any possible write-off of assets) -- missing Wall Street's $0.35 and $1.36 estimates, respectively, by a considerable margin. The company blames difficulty sustaining its development pipeline because of a lack of attractive financing, also noting slower than expected fill-ups at some facilities. The company is cutting back on its development plans.

Asset management services company Conning Corp. (Nasdaq: CNNG) spilled $2 1/32 to $8 27/32 after the company said it doesn't expect to meet analysts' estimates for the second half of 1999. It said to look for EPS of between $0.16 to $0.18 for Q3. First Call's three-analyst consensus estimate was $0.28. Revenues from the company's research and mortgage loan and real estate operations have been disappointing during the quarter.

Promotional products distributor and telemarketing services company HA-LO Industries (NYSE: HMK) dimmed $13/16 to $5 1/8 after the company said it expects to report a Q3 net loss of between $0.03 and $0.05, missing Wall Street's $0.09 consensus estimate. The company anticipates revenues of between $140 million and $150 million, analysts looking for $185 million. Look for results Oct. 25.

Today's Top Stories:

FOOL PLATE SPECIAL An Investment Opinion
Xerox Xerocked
By Dave Marino-Nachison (TMF Braden)

Shares of publishing, printing, and copying equipment maker Xerox Corp. (NYSE: XRX) moved back more than 25% this morning after the company said it expects to report "essentially flat" Q3 revenues -- last year's tally was $4.61 billion -- and EPS down 10% to 12% from the year-ago $0.53 figure. Wall Street was looking for a $0.58 per share profit.

Xerox plans to report results on October 18th.

Revenue, particularly in September, was below expectations both in the U.S. and Europe and the company said that hurt operating margins, along with an unfavorable product mix and increased competitions; also thrown in there were some pressures from disappointing results from the company's Fuji Xerox division and economic weakness in Brazil.

"Today's announcement is clearly disappointing," said Xerox President and CEO Rick Thoman, who was named to the post in April after two years carrying an "OO" instead of an "EO" at the company. "However, we are convinced that our strategy of focusing on industry solutions, a broader array of distribution channels and an expanding product and services portfolio is correct and over time will achieve the revenue and earnings benefits it is intended to produce."

With the shares of this iconic American company beaten down this year, it's important to evaluate Xerox's performance not only in terms of black numbers on white paper but in the context of its progress as it works to recreate itself as a "solutions" company -- a technology consultant of sorts -- instead of just a "products" company.

This is a move that many companies looking to monopolize their customers' money and time -- from software to consulting to commerce -- are making now as they look for ways to leverage growth in their traditional core businesses.

The idea is that, with the company's sales force redirected toward specific industry groups, Xerox can respond directly to the specific needs of its customers with customized packages.

Of course, in order to do this successfully Xerox has to make sure it has the best and broadest product offerings in the business, which is where last month's $950 million purchase of Tektronix's (NYSE: TEK) color printing and imaging division comes in. Although the division's revenues were small last year compared to Xerox's, as a member of the Xerox lineup it gives the company a strong position in the color market that will help it challenge Hewlett-Packard (NYSE: HP).

It also affords Xerox access to a slew of new distribution channels which, if properly plied, can be turned around to help boost consumer access to the rest of the company's line.

But this redirection effort has also required that the company realign its sales force and with Xerox doing that twice in the past year sales have been disrupted, making investors -- particularly the earnings-consensus obsessed Wall Street community -- wary of the company's ability to deliver on its, and their, expectations of performance. Today's news means disappointment for those who got behind a sales projection the company endorsed last month; revenues were up just 1.3% for the first six months of 1999.

A company exec said at a mid-September conference to look for sales growth of approximately 4%.

The bottom line here for investors thinking long-term should really be less a matter of what they think of Xerox' performance vis-a-vis Wall Street's expectations but rather their assessment of Thoman's ability to pull off the reorganization, both operationally and on the product side, while handling his competition.

In interviews and other public statements, Thoman has expressed optimism. Investors who've bought into that might want to start looking more carefully at Xerox with the stock currently out of favor. But with near-term performance anything but guaranteed and a balance sheet long on debt, some caution is probably warranted.


Jupiter Looms Large After IPO
By Richard McCaffery (TMF Gibson)

Whose research do you think all those hot Internet stocks use to pitch investment bankers, anyway?

Internet research firm Jupiter Communications (Nasdaq: JPTR) sold its first shares to the public today at $21 a pop, and shareholders watched as the price doubled by early afternoon.

That gave the New York-based company a market value of around $120 million. Investment bank Donaldson, Lufkin & Jenrette (NYSE: DLJ) initially priced the IPO in the $15 to $17 range, boosted it to $18 to $20 yesterday, then sat back as Internet euphoria sent the shares flying.

One thing refreshing about Jupiter: It's easy for investors to understand what the company does. Jupiter spots Internet trends, makes market forecasts, and offers research-oriented seminars and conferences.

It forecasts, for example, that online holiday sales will double to $6 billion in 1999, and skyrocket to $78 billion by 2003. It predicts that kids and teenagers will spend $1.3 billion online in 2002, and that the online travel industry will hit $17 billion by 2003. This is great stuff, the kind of information reporters, researchers, executives, and bankers rely on to pick winning companies, products, and strategies.

Founded in 1994, Jupiter focuses on Internet commerce. The company's flagship offering is an online subscription product called Strategic Planning Services, which details the fast-changing world of Internet technology. Clients subscribe to one or more of the company's SPS offerings, which include monthly reports, weekly notes, an online library, and other detailed services.

Its revenue is growing fast. As of June 30, the company had 654 SPS clients, up from 421 in December 1998 and 145 in December 1997. Jupiter had $14.8 million in 1998 sales, and made $14.4 million in just the first six months of 1999. It's still an Internet company, however, and hasn't made a profit. Last year it lost $2.1 million. It managed to trim losses in the first six months of 1999 to just $130,000.

Losses are understandable for a start-up company in a new industry. Every fast-growing company balances the need to grab market share against near-term profitability.

But no one escapes at least a cursory cash flow statement analysis. On that point, Jupiter is cash flow positive for the first half of 1999 to the tune of about $3.2 million. This is largely due to an increase in deferred revenue, which represents money paid in advance for services like SPS, and is very common in the subscription business. However, it's the first time the company has been cash flow positive since 1996.

Accounts receivable were up 85% from December to June, which is pretty good for a company that grew sales 143% in the first six months of the year. Still, accounts receivable have been a big reason the company hasn't been cash flow positive historically, and investors should watch to make sure the company is balancing fast growth with strong asset management. Jupiter lists no long-term debt on its balance sheet.

Thanks to a sparkling debut, Jupiter is trading at about the same price as one of its competitors, Forrester Research (Nasdaq: FORR), a market research firm that's done very well for itself. Revenue and net income at the Cambridge, Massachusetts company grew 52% and 34.8%, respectively, compared to the same period a year ago. The company has an attractive profit margin of 12.2%, no long-term debt, and has been increasingly cash flow positive over the last three years.

A second rival, the widely known Gartner Group (NYSE: IT), is Jupiter's largest shareholder with a 28% stake. Gartner is expected to compete directly against Jupiter with its Internet commerce products. In addition, Gartner has the right to appoint two of Jupiter's board members, according to the prospectus, which states specifically that Gartner could use its voting power to negatively affect Jupiter. That could make things tough for the company's shareholders.

No question the market opportunity is huge. According to Jupiter's prospectus, the Organization for Economic Cooperation and Development projects that Internet commerce will hit $1 trillion in revenue by 2005. The company is smart enough to have specialized exclusively on Internet commerce, a single-mindedness that makes analysis easier for investors.

Even though Jupiter's market research has gained a solid reputation, it still lacks Forrester's track record of profitability, especially in terms of operational cash flow. Investors might want to wait until Jupiter demonstrates a consistent ability to generate cash before deciding it's the better investment.

More of Today's Best:

More Genentech Shares On the Way
By Brian Graney (TMF Panic)
-- So, how would you like to make $2 billion in less than four months? Impossible, some might say. But judging from news out of biotechnology firm Genentech (NYSE: DNA) today, that's exactly what its Swiss parent, Roche Holdings, is set to do. To sum up, Roche bought a 35% stake in Genentech for $3.76 billion and will end up selling a 32.6% stake in the company back to the public for a total possible price tag of $5.7 billion -- all in less than four months' time. Pretty nifty, eh? But instead of immediately decrying Roche's actions as some sort of unfair financial sleight of hand, investors should take a look at how the transactions have affected the relative attractiveness of Genentech as a possible investment.
FULL STORY >>

FOOL ON THE HILL An Investment Opinion
The Qwest-US West Merger
By Bill Mann (TMF Otter)
-- In the ruckus that followed the MCI Worldcom (Nasdaq: WCOM)/Sprint Communications (NYSE: FON) $129 billion merger announcement last week, there was the inevitable speculative banter about the "next" big merger candidate in telecommunications. But the MCI/Sprint merger still has huge hurdles to cross before it comes much closer to reality. Lost in the noise was the news of two previously announced and ongoing mergers, the September 28 closing of the Global Crossing (Nasdaq: GBLX)/Frontier merger, and the progress to shareholder vote in the even more substantial merger between Qwest Communications (Nasdaq: QWST) and US West (NYSE: USW). The Qwest merger is a watershed of sorts: a symbolic recognition of the market power of the new communications carriers some 15 years after the breakup of Ma Bell.
FULL STORY >>

BREAKFAST WITH THE FOOL
Mortgage.com Opts Out of Agreement With Intuit
By Richard McCaffery (TMF Gibson)
-- Online mortgage services company Mortgage.com (Nasdaq: MDCM) has canceled one of its two agreements with software maker Intuit (Nasdaq: INTU) to pursue opportunities with other online venders. Mortgage.com officials said the number of loans Intuit's online mortgage service, QuickenMortage, had driven to Mortgage.com had been declining and that the agreement prevented the company from working with other companies in the industry. The cancellation comes in the wake of Intuit's announcement yesterday of an agreement to purchase Rock Financial for $370 million in stock to add to its online mortgage services capabilities.
FULL STORY >>

Western Resources Tired of POI
By Dave Marino-Nachison (TMF Braden)
-- Looking to provide earnings-focused investors with increased reliability in its results, Kansas utility Western Resources (NYSE: WR) today said it's considering alternatives for its 85% ownership in money-losing residential security alarm company Protection One (NYSE: POI). "Western Resources has experienced some short-term financial challenges with regard to its Protection One investment," said Western Chairman and CEO David Witting, "and those challenges must be managed." Protection One's stock has fallen considerably over the past year, which has taken its toll on Western's returns.
FULL STORY >>