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30-Year Bond 100 15/32 -8/32 6.09 Yield
Today's Market Movers:
Online navigation firm LookSmart (Nasdaq: LOOK) eyed a $14 3/4 gain to $41 1/2 after forming a joint venture with British Telecommunications (NYSE: BTY) to develop and deliver "locally relevant" online portal services in Europe and Asia.
Internet telephony services provider iBasis Inc. (Nasdaq: IBAS) climbed $24 1/4 to $40 1/4 after selling 6.8 million shares in an initial public offering at a price of $16 per share. Fellow IPO and broadband communications equipment firm Next Level Communications (Nasdaq: NXTV) jumped $30 3/4 to $50 3/4.
Office products retailer Staples (Nasdaq: SPLS) moved up $2 1/2 to $20 after shareholders approved a plan to create a separate tracking stock for the company's Staples.com e-commerce business. Donaldson, Lufkin & Jenrette analyst Gary Belter raised his rating on the firm to "buy" from "market perform," while Robinson-Humphrey analyst Mark Mandel started coverage of the company with a "short-term buy" rating.
Hard disk drive maker Maxtor (Nasdaq: MXTR) stormed ahead $1 3/16 to $7 1/8 after announcing last night that it is raising prices for its highest volume products. The move prompted Banc of America Securities analyst Paul Fox to raise his opinion on Maxtor and other drive companies, citing a supply/demand imbalance in the PC industry. Seagate (NYSE: SEG) gained $3/4 to $35 1/2 and Quantum Corp.'s Hard Disk Drive Group (NYSE: HDD) rose $1 1/8 to $7 1/2.
Telecommunications synchronicity products maker Datum Inc. (Nasdaq; DATM) tacked on $1 1/4 to $9 after receiving an unsolicited takeover bid from Frequency Electronics (AMEX: FEI), which is offering either $10 in cash or $1.0596 shares for each Datum share. Datum said it is evaluating the offer.
Lighting manufacturer SLI Inc. (NYSE: SLI) was lit up for a $1 3/8 loss to $9 1/2 after reporting pro forma Q3 EPS of $0.20 (excluding charges), down from $0.23 a year ago. For the year, the company is forecasting EPS between $1.20 and $1.30, short of the previous First Call mean estimate of $1.40.
Trash hauler Waste Management (NYSE: WMI) was dumped $2 3/16 to $15 9/16 after posting Q3 EPS of $0.44 (excluding charges), missing the First Call mean estimate of $0.47 that had been adjusted downward on three separate occasions during the quarter. As a result of an ongoing internal review of its business, the company said it will hold off on providing future earnings guidance for a few months. (Good idea!)
Bank holding company Bank One Corp. (NYSE: ONE) slid $4 3/8 to $34 5/8 today. After the bell, the company warned that continued earnings softness at its First USA credit card operations will lead to 1999 operating EPS between $3.45 and $3.55, missing the First Call mean estimate of $3.59.
Commercial real estate services company Trammell Crow Co. (NYSE: TCC) sank $1 11/16 to $12 1/4 following downgrades from Donaldson, Lufkin & Jenrette and Goldman Sachs today.
Today's Top Stories:
Expedia Leaves the Microsoft Nest
Richard McCaffery (TMF Gibson)
It's not all bad news for Microsoft (Nasdaq: MSFT) this week.
Expedia (Nasdaq: EXPE), Microsoft's travel services subsidiary, sold 5.2 million shares at $14 apiece after the bell last night, raising about $68 million to grow its online travel services business.
The shares soared past $56 in early trading, giving the company a market value around $2.1 billion. Microsoft owns 85% of the company, so its stake is worth about $1.8 billion.
Think of Expedia as an online travel agent that has created a community of users around the travel industry. In this regard, the company has done a good job.
It went online in October 1996, and as of September 30, 1999, more than 7.5 million users had registered on its website. More than $790 million in airline ticket purchases and hotel and car rental reservations have been made through Expedia so far.
In the travel services category for the month of September, only AOL's (NYSE: AOL) Travel Channel had more unique visitors than Expedia, according to Media Metrix.
Stoked by a healthy economy, travel services is a fast-growing industry. Online transactions in the travel services market are expected to increase from $3.1 billion in 1998 to more than $29 billion in 2003, according to market research firm Forrester Research.
In an evaluation of 34 travel-related sites, Forrester predicted that nine will snag the bulk of future revenues. Expedia came in third in Forrester's ranking, with Yahoo! (Nasdaq: YHOO) grabbing the number one spot. Travelocity, which is owned by Sabre (NYSE: TSG) -- operator of the biggest computerized travel reservation system in the world -- came in number two.
Perhaps the biggest risk for Expedia, as well as its competitors, is that the company doesn't have pricing control over a significant portion of its revenue stream. Why is this so important? Companies with pricing restrictions have to rely largely on volume and efficiency to grow earnings. Take a look at the PC manufacturing industry to get an idea of how difficult life can be.
In Expedia's case, a big chunk of its revenue depends on commissions paid by travel suppliers. As the company explains in its prospectus, Expedia doesn't have written agreements with suppliers so it relies on informal deals for payments -- that's how it's done in the travel industry.
As a result, hotels, airlines, and other suppliers can change commission levels any time they want, a move that would impact Expedia's bottom line. Since 1998, many airlines pay a flat $10 commission for domestic tickets booked online. It's hard to imagine those commissions going up.
It's critical for Expedia to differentiate itself in regard to customer service, and the good news here is that you can go right to its website and kick the tires. Is it fun and easy to navigate? Did you get the hotel price you wanted? How's the content? Get your hands dirty and find out.
The company has differentiated itself from many competitors by letting customers negotiate hotel prices, a la Priceline.com (Nasdaq: PCLN). In fact, Priceline is suing Expedia and Microsoft for allegedly violating its patent. There's no telling how this will work out, but if it doesn't go in Expedia's favor it will lose an edge over competitors.
Expedia also plans to add to its revenue mix by offering new services. Most of its revenues come from airline ticket sales, followed by hotel reservations and car rentals. Expedia plans to offer more involved travel products such as cruises and vacation packages, which should help boost the bottom line.
Investors need to determine how well-positioned Expedia is to build its brand name, establish customer loyalties, and protect its turf. The Microsoft cradle was a cozy place to start, and some of the legacy benefits will continue. For example, Expedia is the exclusive provider of travel services on Microsoft's MSN networks of websites, which had the third highest number of unique visitors for the month of September, behind AOL and Yahoo!
Expedia looks like a company that's in a good position to compete, but the economics of the industry probably aren't compelling enough to make many investors look past its net losses and negative cash flow.
FOOL PLATE SPECIAL An Investment Opinion
Abercrombie's Q3 Humbles Estimates
Dave Marino-Nachison (TMF Braden)
One of the many reasons investors like flannels flogger Abercrombie & Fitch (NYSE: ANF) so much is that you just don't see as much clearance merchandise sitting on the racks as you do at many apparel retailers -- and when you do, it's generally snapped up quicker than you can say "parachute pants."
The mega-markdowns at Abercrombie, simply put, don't last long -- and it looks like the recent slashing of the company's share price is coming to an end as well following last night's after-close fiscal third-quarter (ended Oct. 30) earnings report. Despite a slight early-morning downturn, the stock has still regained a hefty slice of the ground lost last month after word spread that someone on the inside snuck downbeat sales data to Lazard Freres & Co. analyst Todd Slater.
Following the October imbroglio, the company quickly issued a statement saying back-to-school sales were strong and it was comfortable with Wall Street's consensus earnings estimate of $0.31 per share.
Abercrombie followed that up last night by giving doubters what should be taken as a dressing-down for those who dared doubt the Columbus, Ohio-based fashion dictator, turning in quarterly EPS of $0.36, up 50% from $0.24 last year and a nickel better than expected.
Some investors may consider this a sign that management can be trusted again following the unfortunate leak; cynics might say the company intentionally low-balled its guidance to guarantee a blowout quarter.
Nevertheless, shareholder lawsuits have cropped up since last month: Abercrombie said in its conference call yesterday that it has enough insurance to cover related costs.
Among other key numbers, revenues, gross income, operating income, and net income rose 24.8%, 36.3%, 55%, and 56.1%, respectively, year-over-year as margins improved significantly across the board. Cash and equivalents rose $33.1 million from the end of Q2. (For the company's full press release, click here.)
Same-store sales rose 11% from last year's quarter. Looking forward, Chairman and CEO Mike Jeffries said he believes the company is "well-positioned for the holiday season" and expressed his comfort with Wall Street's $0.73 per share consensus EPS estimate for the fiscal year's final three-month period based on November selling trends. Look for 17 new full-line stores and 13 of the company's kids' "abercrombie" format stores to open during the quarter, bringing the total to 250 stores (35 in the little "a" format). Another 30 to 50 of the kids' stores are on the way next year.
Given that Abercrombie has beaten its earnings estimates in every quarter since going public about three years ago, what should investors make of the targets -- especially when the company humbles even its own guidance? Probably nothing. Just follow the numbers; they're impressive enough without being compared to the best guesses of a few CFAs.
After all, internal targets are set at 30% earnings growth, 20% square-footage growth, and same-store sales growth in the 5% to 6% range. (Abercrombie, which generally doesn't release monthly sales data, now says it will alert investors if it believes it will miss its targeted comps figure.) Those figures have been easy pickings for Abercrombie over the last several years.
"We continue to consistently outperform our growth model," Jeffries said in the call. "The Abercrombie & Fitch brand has never been stronger." That should be reassuring to investors, who've become accustomed to go-go growth numbers and high-flying share prices over the last three years.
It's the way of the shopping trade: miss the sales and you're stuck paying full price again. That appears to be happening with Abercrombie stock, and Jeffries told investors yesterday that most of his company's closeouts will be gone by Thanksgiving week as well. Prospective bargain hunters be warned.
A replay of the company's conference call is available by dialing 1-800-625-5288 and entering the code 460246. It can also be found online by clicking here.
Abercrombie Web Page
Abercrombie Message Board
Fool News, 10/13/99: Abercrombie Speaks Out
More of Today's Best:
BREAKFAST WITH THE FOOL
UPS Delivers on IPO
Richard McCaffery (TMF Gibson)
-- Package delivery company United Parcel Service (NYSE: UPS) may be 92 years old, but it's off to a fast start. The company with the brown trucks that delivers more than 12 million packages and documents daily became the largest initial public offering in history, raising $5.47 billion by selling 109.4 million shares. This represents 9% of the company. The money raised in the offering will be used to repurchase some of the outstanding Class A Common Stock, to investment in new technology, and to expand in the United States and abroad.
FULL STORY >>
FOOL ON THE HILL An Investment Opinion
Is the Internet Revolution Over?
Bill Mann (TMF Otter)
-- As much as people scream about the staggering valuations given the ".com's," it may be worthwhile to look at the Internet companies that have not reached the heights of commercial success. After all, it is a common misconception that one can take any idea, slap a .com onto it, and sit back and collect the moolah. Well, it's just not so. For every eBay (Nasdaq: EBAY) or Amazon.com (Nasdaq: AMZN) that seems to defy gravity and every law of valuation, there are others that have seen their market caps clipped at the knees, their business models raked over, their losses (both paper and real) piled high. As the wave of initial public offerings continues, we will likely see the flameouts of more and more Internet companies.
FULL STORY >>
Rite Aid's Sad Saga Continues
Dave Marino-Nachison (TMF Braden)
-- "It's like a nightmare, isn't it?" Paul Newman's Eddie Felson asked Grady Seasons in the closing frames of the 1986 billiard hall classic "The Color of Money." Stockholders of embattled drugstore chain Rite Aid (NYSE: RAD) must feel themselves a bit behind the proverbial 9-ball, their shares the worst-performing on the Standard & Poor's 500 Index so far this year and their company issuing an ever-unraveling mess of bad news. Today, the company's stock dropped another 25% of its market value after it told investors "not to rely on forward-looking profitability and cash flow information" disseminated at an Oct. 11 analyst and investor meeting. In a conference call last month, former Chairman and CEO Martin Grass forecast earnings before interest, taxes and amortization of $1.01 billion this year and cash flow of $1.27 and $1.46 billion last year.
FULL STORY >>
NextCard Links Up With Amazon
Brian Graney (TMF Panic)
-- Online credit card issuer NextCard (Nasdaq: NXCD) jumped into the investing spotlight today after announcing a five-year exclusive deal to offer co-branded credit cards in conjunction with Amazon.com (Nasdaq: AMZN). Amazon expects to realize about $150 million in fees over the life of the relationship, while NextCard gets to mine the purchasing data for the online retailer's more than 13 million customers in an effort to sign up new cardholders. Perhaps even more important in investors' eyes today, Amazon effectively gave the credit card company its Internet seal of approval by picking up a warrant to buy a 9.9% equity stake in NextCard.
FULL STORY >>