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Closing Market Numbers
DJIA 10648.51 -81.35 (-0.76%)
S&P 500 1354.12 -8.81 (-0.65%)
Nasdaq 2967.65 +1.22 (+0.04%)
Russell 2000 431.82 +3.18 (+0.74%)
30-Year Bond 99 8/32 -7/32 6.18 Yield
Today's Market Movers:
Database software firm Oracle Corp. (Nasdaq: ORCL) gained $3 5/8 to $51 3/16 after Merrill Lynch analyst Chris Shilakes raised the company's 12-month price target to $60 per share from $55 per share, citing a strong pipeline of e-commerce-related business.
Online trading and market data services provider Track Data (Nasdaq: TRAC) moved up $3 13/32 to $12 7/8 after setting a two-for-one stock split. On Friday, the company's stock rose 35% on news that it has filed with the SEC and the NASD to establish an electronic communications network (ECN).
Online content delivery system developer Akamai Technologies (Nasdaq: AKAM) jumped another $29 1/8 to $174 5/16 today, adding to a more than 450% gain on its first day of trading on Friday. After two days on the public markets, the Cambridge, Massachusetts-based company has managed to attain a market valuation of $15.9 billion.
Internet consulting software Spyglass Inc. (Nasdaq: SPYG) eyed a $8 7/16 gain to $24 1/2 after licensing its Prism content transformation and delivery platform to Fujitsu@nifty, which is Japan's largest Internet service provider with 3.5 million subscribers.
Diversified electronics, healthcare, and security services conglomerate Tyco International (NYSE: TYC) shed $4 9/16 to $35 9/16 on continuing fallout from recent articles in The New York Times, The Wall Street Journal, and other publications that have raised questions about the company's accounting policies. In the past month alone, the accounting allegations have lopped off $13 billion of the company's market value.
Banking powerhouse Chase Manhattan Corp. (NYSE: CMB) slid $3 11/16 to $83 9/16 after saying its fourth-quarter trading revenues will be reduced by about $60 million pretax due to misstated trading profits in previous quarters.
Specialty insurer Frontier Insurance Group (NYSE: FTR) was walloped $4 1/8 to $4 3/8, or 46.5%, after saying it will delay reporting its third-quarter results by nearly two weeks as it works to complete an expanded quarterly reserve analysis. At least three brokerage firms cut their ratings on the stock today.
Hotel franchisor U.S. Franchise Systems (Nasdaq: USFS) tumbled $5 7/32 to $7 17/32 despite posting Q3 EPS of $0.16 (excluding charges), up from $0.01 a year ago and in line with analysts' expectations. However, the company warned that a difficult operating environment has made it "uncomfortable" with the First Call mean EPS estimates of $0.17 and $0.74 for Q4 and fiscal 1999, respectively.
Today's Top Stories:
FOOL PLATE SPECIAL An Investment Opinion
Wit Capital Buys SoundView
Dave Marino-Nachison (TMF Braden)
Online investment banker Wit Capital Group Inc. (Nasdaq: WITC) moved to boost its research offerings and broaden its distribution channels today, announcing the purchase of private investment banking firm SoundView Technology Group.
Founded about 20 years ago as part of information technology research and consulting firm Gartner Group (NYSE: IT), SoundView -- which specializes in software, telecom, and other technology-related areas -- will cost Wit approximately $320 million in newly issued stock and options. The combined companies should boast a pretty strong breadth of expertise across the technology sector with Wit Capital bringing its Internet background to the table.
"We had to dramatically grow our content and product offerings," said Wit co-CEO Ron Readmond on a conference call this morning. "Our choices came down to buy versus build."
Investors liked the "buy" idea and bought themselves; shares of Wit rose nearly 30% in this morning's trading -- though Wit stock is still well off its post-IPO midsummer highs.
The idea behind the deal is that customers (Wit is geared toward individuals while SoundView focuses on institutions) and issuers (the companies that use Wit to offer shares to investors) alike will appreciate Wit's expanded research offerings, areas of expertise, and ability to raise capital.
Financial details of the deal were pretty slim, which is not surprising since SoundView is a private company. According to Wit, the company paid 16.8 times SoundView's trailing 12-month net income and 2.3 times its revenues for that period.
SoundView President and CEO Russ Crabs, who will join Wit's board and plans to stay active in operations as well, said his company's revenues for the first nine months of 1999 were about $100 million -- up from $60 million in 1997 and $84 million in 1998 -- with profits "well in excess of revenue growth."
Wit's revenues through the first nine months of the year were $27.6 million.
But although Readmond said the deal, seen closing in January, is expected to be "highly accretive" to Wit's earnings, he wasn't willing to get specific about when the combined companies might eventually turn a profit. Two analysts surveyed by First Call expect Wit will turn in its first profitable quarter and year in 2001.
"It is a matter of public record that Wit Capital has been improving its margins but still has not turned in a profitable quarter," said Readmond. "The combined entity accelerates our profitability... but the objective [is] to continue to build a world-class franchise. That will be our first priority over the next 12 months."
A replay of Wit's call will be available through midnight of Nov. 3 by dialing (800) 633-8284 and selecting reservation number 13446993. Wit deserves kudos for opening its conference call to media and investors, and for posting transcripts of its quarterly earnings calls -- including the question-and-answer portion -- online.
JNI Goes From Hot to Hotter in Days Following IPO
Richard McCaffery (TMF Gibson)
Two years ago, the dotcom companies stunned Wall Street with overnight valuations in the billions. Earlier this year, it was the e-commerce players. Now it's companies like JNI Corp. (Nasdaq: JNIC), builders of hardware and software that speed up transactions on the World Wide Web.
JNI went public October 26 with the sale of 4.9 million shares at $19 each. It closed the first day at $42, good for a 121% climb and a market cap of $1.6 billion. That was last week. Now, it's rising faster than this story is being written, from $58 13/16 to $73 5/8.
The fuel that's firing JNI, of course, is the Internet. As businesses go online, they need help from providers of Internet hardware and software to make the leap. Companies like Cisco Systems (Nasdaq: CSCO), Juniper Networks (Nasdaq: JNPR), and Foundry Networks (Nasdaq: FDRY) pave the road with routers, switches, and networking devices.
By now, it's well-known that one way to capitalize on a business trend is to bet on the companies that provide the infrastructure rather than those offering the services. That's the way to think of JNI.
Founded in 1993 as a division of Jaycor Inc., the company makes fibre channel hardware and software products that connect servers and data storage devices. It's all about speed on the Internet, and fibre channel equipment offers (in many cases) the fastest, most flexible way for companies to manage access to stored data.
Since it's so fast, fibre channel is expected to replace Small System Computer Interface (SSCI) as the transmission interface between servers and clustered storage devices, according to JNI.
The company's list of influential customers helps make the case: Amazon.com (Nasdaq: AMZN), Boeing (NYSE: BA), Charles Schwab (NYSE: SCH), and FDX Corp. (NYSE: FDX). The list goes on and on.
There's no shortage of forecasts predicting growth. Research firm International Data Corp. expects the market for products based on fibre channel technology will hit $15 billion by 2002, up from $2 billion in 1998.
Still, infrastructure companies struggle just like services companies when the products they make turn into commodities, become obsolete, or the market becomes saturated. Investors considering this industry should be genuinely interested in fibre channel, storage area networks, etc., in order to do the work required to understand the technology and JNI's place in the growing industry.
Pricing is clearly an issue in this industry. In its prospectus, JNI's management says, "The average selling prices of our new and existing products are likely to continue to decline in the future as we and our competitors introduce new and more technologically advanced products and as price-based competition intensifies."
That's the law of the jungle, but in an industry where pricing pressures are this extreme, investors are wise to align themselves with the sharpest management, one that's proven -- over time -- it can be the low-cost provider. On this score, it would make sense to give JNI some time to prove its mettle.
The company has strong momentum. Sales grew to $15.1 million in the first half of 1999 compared to $3.8 million last year. In addition, it turned a profit of $1.8 million, or $0.06 per diluted share, for the same period, and has no long-term debt.
On the other hand, JNI was cash flow negative for the first half of the year, mainly because of a run-up in accounts receivable and inventory. That's not unusual for a young company ramping up growth, but Fools like to see companies maintain positive cash flow since it's such a crucial measure of profitability. The company was cash flow positive in 1998, and investors should watch to see that it repeats the performance in 1999.
Of course, JNI isn't cheap. It shouldn't be if it's worth its salt. JNI trades at more than 30 times sales and at a P/E that tops 400. At these kinds of prices, investors should be sure they're getting a company bound to be a player in a major market, not a supplier in a niche industry.
Based on industry growth predictions, the market looks strong. The fibre channel industry is fragmented with players like Hewlett-Packard (NYSE: HWP), Interphase (Nasdaq: INPH), and QLogic (Nasdaq: QLGC) fighting to establish position.
With its momentum and fresh pile of cash, the company looks like it's in a good position to grab market share. But if it's a good company now, it will be a good company a year from now. In addition, investors will have had a year to examine the company as a publicly traded firm. It's one to watch closely.
More of Today's Best:
BREAKFAST WITH THE FOOL
eBay Venturing Capital on Internet Venture
Richard McCaffery (TMF Gibson)
-- The company that made online auctions a part of everyday commerce for many American consumers expects the Internet will do the same for businesses. And it wants a piece of the action. Online auctioneer eBay (Nasdaq: EBAY) is supplying a portion of $22 million in venture capital being invested in TradeOut.com, a New York-based Internet start-up that offers business-to-business auction services, The Wall Street Journal reported. It's one of the first stock investments eBay has made so far, and should come as good news for investors eager to see the San Jose, California company put its $740 million in cash and short-term investments to good use.
FULL STORY >>
FOOL ON THE HILL An Investment Opinion
Creating Good Customer Experiences
Yi-Hsin Chang (TMF Puck)
-- I just learned about an interesting New York-based Internet company called Creative Good. Its CEO, Phil Terry, recently spoke to NYU-Stern Business School's Technology and New Media Group (TANG), of which I'm an officer. What is Creative Good? It's a privately held Internet strategy consulting firm focused on the customer experience. It aims to bring its clients "higher revenue, more customer retention, better branding, and enhanced productivity" by improving the customer experience. It's not enough to spend millions of dollars driving traffic to a website; Internet companies must also invest in the experience customers have once they get to the site. The key words here are "customer experience." Phil Terry explained that the Web is simply too hard for people to use.
FULL STORY >>
Mercury General Retreats
Brian Graney (TMF Panic)
-- Auto insurer Mercury General Corp. (NYSE: MCY) lost ground on the insurance battlefront this morning as the company turned in lower-than-expected third-quarter results. Net operating earnings per share fell 19% in the period to $0.59, a much steeper decline than the roughly 5% drop anticipated by analysts. Total premiums written ticked up 4.8%, lower than the 8.7% year-over-year growth seen in Q2. In the crucial California market, where the company does about 90% of its premium writing, premiums written increased by 4.3%. Observers had been expecting bad news from the company during the quarter, even though Mercury General bucked the trend of other auto insurers and failed to give everyone a heads-up warning with a formal earnings pre-announcement.
FULL STORY >>
Express Scripts Sees Things Picking Back Up
Dave Marino-Nachison (TMF Braden)
-- Shares of pharmacy benefit management (PBM) company Express Scripts Inc. (Nasdaq: ESRX) rose more than 10% today after it set forth an encouraging earnings outlook heading into the next century. "Our outlook moving forward is very positive," said President and CEO Barrett Toan in a press release. "We believe we will continue to post strong earnings growth in 1999 and 2000 in line with our historical earnings growth rate. We know of no material issues that would change that outlook at this time." Over the last five full years, Express Scripts' net income has risen more than 27% annually on a compounded basis.
FULL STORY >>