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Closing Market Numbers
DJIA 10883.09 -49.24 (-0.45%)
S&P 500 1410.71 -9.32 (-0.66%)
Nasdaq 3269.39 -26.13 (-0.79%)
Russell 2000 457.07 +0.19 (+0.04%)
30-Year Bond 99 29/32 -30/32 6.13 Yield
Today's Market Movers:
Data management software provider Oracle Corp. (Nasdaq: ORCL) jumped $6 1/2 to $71 after company officials impressed analysts with optimistic forecasts about sales and earnings in the current fiscal second quarter and the full fiscal year 2000. Merrill Lynch, Lehman Brothers, and Salomon Smith Barney raised their price targets on the firm, while J.P. Morgan upped its opinion to "buy" from "market performer."
Customer relationship management (CRM) services firm Rainmaker Systems (Nasdaq: RMKR) stormed ahead $10 1/2 to $18 1/2 after selling 5 million shares in an initial public offering at a price of $8 per share. In other IPO news, e-business management software company iManage (Nasdaq: IMAN) gained $13 5/8 to $24 5/8, Spanish Internet services provider Terra Networks SA (Nasdaq: TRRA) soared $24 27/32 to $38 1/4, and digital subscriber line (DSL) processor and software modules maker Virata Corp. (Nasdaq: VRTA) leapt $12 9/16 to $26 9/16.
Online professional and training books provider Fatbrain.com (Nasdaq: FATB) packed on $7 1/2 to $34 1/8 after pre-announcing fiscal Q3 revenues of $10 million and a loss between $0.80 and $0.82 per share, potentially not quite as bad as the mean loss of $0.82 per share expected by analysts surveyed by First Call.
Oil and gas exploration and production company Triton Energy Ltd. (NYSE: OIL) popped up $4 3/16 to $25 today. In response to a New York Stock Exchange request for information, the company said preliminary well findings have confirmed the firm's Ceiba Field discovery, which was announced last month. More information will be released once well operations are complete and the results have been evaluated, the company said.
Horace Mann Educators (NYSE: HMN), which markets insurance and retirement products to teachers, was spanked for a $8 3/16 loss to $21 13/16 after the company said it has decided to remain independent and will discontinue a previously announced search for a buyer.
E-business software provider Vignette Corp. (Nasdaq: VIGN) slid $15 7/8 to $165 1/4 after filing with the Securities and Exchange Commission to sell 1.23 million shares, including 329,500 shares held by existing shareholders.
In other share issuance news, wireless Internet software provider Phone.com (Nasdaq: PHCM) was cut $8 1/4 to $135 1/16 after announcing a public offering of 6.6 million shares at a price of $135 per share, including 4.4 million shares that are being sold by current shareholders.
Thermal energy company Trigen Energy (NYSE: TGN) was burned for a $2 1/16 loss to $19 15/16 after French majority owner Suex Lyonnaise des Eaux SA yesterday withdrew its cash offer to acquire the shares of the company that it did not already own for $22 per share.
Today's Top Stories:
CMGI Revenues Growing: So?
Dave Marino-Nachison (TMF Braden)
Trying to get a handle on sprawling Internet venture fund CMGI (Nasdaq: CMGI) can be a difficult task for investors, but one thing is certain: grasping at efficacious numbers just isn't the way to go. Yesterday, for example, CMGI Chairman and CEO David Wetherell said at a Bloomberg-sponsored conference in San Francisco yesterday that CMGI will be the second-largest Internet company, revenue-wise, when its fiscal year ends in July.
CMGI, Wetherell said, will fall in somewhere between leading online services company America Online (NYSE: AOL) and portal giant Yahoo! (Nasdaq: YHOO) by midsummer. The effect of comments like that is to draw casual comparisons between CMGI and the two giants of Internet industry -- because anything more than a casual comparison is a pretty fruitless exercise.
It doesn't take much energy to realize that while parallels between the companies' revenue streams certainly exist at various points -- the advertising and e-commerce revenues that come from operating online cynosures AOL, Yahoo!, and Lycos (Nasdaq: LCOS), of which CMGI is a top shareholder -- but those parallels only go so far.
Even more disparate are the companies' individual roads to profitability. CMGI, after all, managed an impressive $453 million in net income for fiscal 1999 (ended July 31). However, the company's actual operations didn't provide much in the way of help, having turned nearly as much in operating losses as they did in revenues; but tack on profits from sales of Lycos stock, an investment in Reel.com and others, and you've suddenly got huge earnings numbers without having your actual businesses make a cent.
Compare that to AOL or Yahoo!, which post nice operating profits but can't boast the same outlandish net profits the sales of investments bring in and you won't learn much.
It's quandaries like these that can make Internet-era investing -- particularly in companies like CMGI -- such a handful for everyone from studious Fools to conflicted Wall Street analysts. Whereas it's easy enough, at almost any level, to study a company's business and the metrics and factors that mark its health and growth, many of the emerging businesses make such an exercise nearly impossible.
In CMGI's case, after all, many of the company's investment dollars are in operations that aren't public, so tracking them individually is essentially impossible. Besides, what would you learn? One of the next businesses CMGI plans to take public is online vitamin retailer MotherNature.com, which television watchers will remember as the "$20 off everything" company. Those should be some interesting revenue numbers.
Investors are instead forced to bank primarily on the abilities of Wetherell not only to pick quality businesses to incubate but to effectively gauge the market's desire to have such a company go public (or the likelihood of a third party to be interested in buying a stake for more than CMGI paid for it).
But guess what? While that's not something easily tracked statistically, perhaps the best way to measure that is through that "other income" line item, in many ways a measure of the market's affirmation of CMGI's decisions measuring as it does the sale value of the company's various investments. Even better, head to the cash flow statement, where you'll find a company building its cash balance off investment and financing income while losing money from operations like it was the next big thing (which, apparently, it is). Not exactly the way many of us learned it in school, is it?
Of course, given that the market's fancy can change at any time, trying to guess where CMGI will end up in, say, five years based on past performance is nigh-unto impossible. But one thing's for sure: using Internet buzzmetric revenue growth as a key indicator isn't going make things much easier. That's not to say sales growth isn't important; but recent history has shown it doesn't do much to justify the valuations of AOL or Yahoo! either.
People a lot smarter than I are working on getting their arms around this topic as we speak: probably the best starting point on the subject is the "CashFlow.com: Cash Economics In the New Economy" report by Michael Mauboussin.
CMGI Web Page
CMGI Message Board
Fool News, 9/28/99: GeoCities Sale Springboards CMGI
FOOL PLATE SPECIAL
Priceline Adds Three New Carriers to the Mix
Brian Graney (TMF Panic)
Investors in e-commerce intermediary priceline.com (Nasdaq: PCLN) woke up to some big news today as the company announced that UAL Corp.'s (NYSE: UAL) United Airlines, AMR Corp.'s (NYSE: AMR) American Airlines, and US Airways (NYSE: U) have signed up for its "name your price" leisure airline ticket program. With the new airlines on board, priceline users now have the ability to buy specially priced tickets from all of the major U.S. carriers, which combined represent 90% of the U.S. airline market and fly more than 500,000 empty seats on average each day. Investors cheered the news, sending priceline's share price up more than 10% this morning.
At priceline, bagging the final stragglers to round out its airline ticket fleet is being regarded as a major coup. "We view this addition of three major domestic airlines as an extremely strong endorsement of the value of priceline.com's system to our airline partners," said chairman and CEO Richard Braddock. "The Internet will continue to be the travel industry's most competitive sector, but priceline.com has clearly carved out a unique franchise for itself and is now in a position to serve the entire airline industry.''
The company has been quick to tout the benefits that airlines can derive from its demand collection services, namely incremental revenues on seats that would have otherwise gone unsold through the traditional distribution channels of airline ticketing agencies, travel agencies, and air travel consolidators. To keep some level of control over their revenue-management systems, airlines in return have the flexibility to pick and choose which routes to include in the program, how many tickets to offer, and what discount to accept from priceline users.
However, not everyone in the airline industry has supported the priceline concept. Former AMR CEO Robert Crandall publicly questioned the concept in a speech earlier this year, saying the whole idea of special or off-tariff discounts "doesn't make any business sense." Of course, judging from the incredibly dismal value creation history of airlines in general over the years (cited most recently by Warren Buffett in this article), pretty much the same "bad business" argument could be thrown right back at the entire airline industry.
Selling tickets off-tariff doesn't seem like bad medicine to the airlines when the deal includes copious amounts of stock purchase warrants in a high-flying Internet company. Delta Air Lines (NYSE: DAL) took the most risk by signing up with priceline earlier than any of the other big carriers. As a consequence, Delta is reaping the biggest windfall from priceline's Mach speed price appreciation. That should make the Atlanta-based carrier's shareholders smile, though the situation must have its rivals angrier than those wacky first class passengers currently fuming at United about ditching its crystal salt and pepper shakers for ordinary sachets.
Late last week, Delta exercised the warrants from its 1998 agreement with priceline to acquire more than 16.5 million shares -- effectively at zero cost. Instead of paying the exercise price of $0.93 per share, Delta simply sacrificed some 2.1 million additional shares that were issuable under the original warrants for 18.6 million shares. Based on priceline's closing price on Friday, Delta's windfall on paper roughly equaled a startling $934 million, which is equivalent to 86% of its total net income for fiscal 1999.
After some financial juggling between the two companies, though, Delta's priceline purse works out this way:
-- $125 million for 2.08 million shares sold back to priceline founder Jay Walker
-- 6 million shares of convertible preferred stock, which were received in exchange for an equal number of priceline common shares
-- 8.5 million common shares with a current market value of about $650 million
-- new warrants to buy 5.5 million priceline shares at a price of $56 5/8 per share
At the end of the day, that's still not too shabby for slightly more than a year's worth of partnering work with priceline. UAL, AMR, and US Airways shouldn't expect the same kind of return from their priceline warrants, but missing out on at least part of the action proved to be too hard to pass up in the end. UAL and AMR will each receive warrants for 5.5 million priceline shares, while US Airways is set to receive warrants for 1.5 million shares.
Of course, this warrants issuance business will catch up to priceline and be dilutive to shareholders at some point down the road. But right now, the company and its airline partners appear to be having too much fun tallying up the potential short-term rewards to worry about such things.
More of Today's Best:
Richard McCaffery (TMF Gibson)
-- All hail Motorola (NYSE: MOT) investors who kept the faith during last year's dark hours, held their shares, and watched the stock appreciate 117% to around $120 over the last 12 months. Buy-and-hold investor Philip Fisher, who recognized the company's strengths in the 1950s, would be proud. Today the company announced it would spend less than expected to ready its systems for the year 2000. It expects to spend between $225 million and $235 million fixing its systems, down from earlier estimates as high as $300 million. Is the difference significant to a company with sales of $29 billion last year? You bet.
FULL STORY >>
FOOL ON THE HILL An Investment Opinion
How Revenues = Share Price
Bill Mann (TMF Otter)
-- Continuing the theme from my prior articles (see Fool on the Hill, Nov. 3 and Fool on the Hill, Nov. 5) of general investment concepts, I'm going to focus today on what exactly investors are purchasing when they buy stocks. I know, this type of review may be about as much fun as watching the furnace run, but really, it's important, and although it seems that everyone who owns equities THINK they know what it is they have purchased, I'm here to tell you, it ain't necessarily so. So today, we're gonna do some math. No heavy lifting, just some simple precepts. The Fool isn't about turning investing into rocket science; we've got the Wise for that. What we're going to do here is provide a little background on what companies are expected to do by virtue of their per share prices.
FULL STORY >>
BREAKFAST WITH THE FOOL
American Eagle Soaring Into Busy Holiday Season
Richard McCaffery (TMF Gibson)
-- What a run the leading casual clothing retailers have had in the last three years. Apparel, footwear, and accessories maker American Eagle Outfitters (Nasdaq: AEOS) is riding a swift updraft. The company, whose stock is up 68% this year, reported third quarter net income of $24.3 million, or $0.50 per diluted share. This is a 75% increase from net income of $13.9 million, or $0.29 per diluted share, a year ago. Results blew away analyst estimates of $0.43 per share, according to First Call/Thomson. What makes the company's Q3 results even more impressive is the strength of last year's third quarter. A 75% growth in net income wouldn't be such a big deal if the company reported negative growth last year. But that's not what happened. Net income jumped 121% last year, and same-store sales increased 29.4%.
FULL STORY >>
Consolidated Stores: Lots to Offer?
Dave Marino-Nachison (TMF Braden)
-- Investors looking for exposure to deep-discount retailing started visiting Consolidated Stores (NYSE CNS) in 1995 and the results were astounding, the stock turning in three-year returns of better than 300%. But then things began to turn at the operator of Odd Lots, Big Lots, Pic 'N' Save, the K*B Toys operation, and the wonderfully named MacFrugal's Bargains*Closeouts -- the company's main competitor was bought in 1998 for about $1 billion. Shortly after that deal closed, the company said fiscal-year earnings would disappoint as high-margin toy sales came in lower than anticipated; a hefty charge for the MacFrugal's buy didn't help matters. This year hasn't been much better for Consolidated stockholders despite an aborted late spring-early summer rally. Where does the company stand now?
FULL STORY >>