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Closing Market Numbers
DJIA 11203.60 +3.06 (+0.03%) S&P 500 1435.99 +2.56 (+0.18%) Nasdaq 3937.30 +26.15 (+0.67%) Russell 2000 477.94 +2.15 (+0.45%) 30-Year Bond 95 22/32 +3/32 6.45 Yield
Today's Market Movers:
Genome Therapeutics (Nasdaq: GENE), which uses its own proprietary analytical tools to identify and characterize genes, jumped $4 1/2 to $13 1/2 after forming an alliance with American Home Products' (NYSE: AHP) Wyeth-Ayerst drug unit to develop therapies to treat and prevent osteoporosis. As part of the agreement, Wyeth-Ayerst has agreed to pay an up-front license fee and will provide milestone payments that could exceed $118 million if the multiyear research program is carried out to full term.
Web hosting and Internet data centers firm Exodus Communications (Nasdaq: EXDS) picked up $7 7/16 to $87 1/2 after PaineWebber raised its 12-month price target for the firm to $105 per share from $78 per share, citing higher revenue expectations.
Photographic products company Eastman Kodak (NYSE: EK) gained $4 11/16 to $62 1/16 after naming former Unisys (NYSE: UIS) CFO Robert Brust as its new CFO. Unisys fell $1 7/16 to $30 15/16 on the news of Brust's abrupt departure.
Automated teller machines and data warehousing company NCR Corp. (NYSE: NCR) charged ahead $3 11/16 to $36 1/4 on news that it will be added to the S&P 500 Index. Two other new additions to the index rose as well, with oil driller Transocean Offshore (NYSE: RIG) climbing $2 9/16 to $29 11/16 and bank holding company First Security Corp. (Nasdaq: FSCO) advancing $1 5/16 to $29 3/4.
Online financial research portal Multex.com (Nasdaq: MLTX) moved up $8 3/8 to $38 3/8 after signing a multiyear, multimillion dollar agreement to develop research websites for institutional clients of brokerage firm Merrill Lynch (NYSE: MER). As part of the deal, Merrill Lynch will take an undisclosed stake in Multex.com and transfer proprietary research technologies to the firm.
Networking products company 3Com (Nasdaq: COMS) shed $4 11/16 to $48 7/16 after warning that a Y2K-related revenue slowdown will lead to fiscal Q3 EPS flat with last year's $0.24, missing the First Call mean estimate of $0.32. SunTrust Equitable Securities and SG Cowen cut their ratings on the firm today.
Desktop software maker Corel Corp. (Nasdaq: CORL) dropped $5 3/8 to $13 3/16 after saying it will report a fiscal Q4 loss of $0.14 per share, down from last year's profit of $0.10 and short of the First Call mean earnings estimate of $0.15. The company said sales into the distribution channel of $77 million amounted to only $61 million of recognizable revenue in the quarter, which is a nice way of saying that Corel has been stuffing the channel like Julia Child stuffing a Christmas goose.
Pagers and wireless e-mail products developer Research in Motion (Nasdaq: RIMM) was ripped for a $3 1/4 loss to $43 after the company reportedly told analysts that shipments of its interactive pagers to client BellSouth (NYSE: BLS) are being delayed from January until April as the Baby Bell sorts out an inventory imbalance, according to Bloomberg News.
Print shop roll-up firm Consolidated Graphics (NYSE: CGX) tumbled $5 7/8 to $14 1/2 after warning that weak industry conditions will lead to fiscal Q3 EPS of $0.56 compared to $0.60 a year ago, falling shy of the First Call mean estimate of $0.70. The company also said its results in Q4 will be comparable to Q3.
Medical products and outsourcing services firm Colorado MEDtech (Nasdaq: CMED) slid $5 7/16 to $8 after saying its fiscal Q2 EPS will fall short of the First Call mean estimate of $0.19 due to product shipment delays.
Today's Top Stories:
FOOL PLATE SPECIAL An Investment Opinion
AOL Hunts for Eyeballs With MapQuest.com
Brian Graney (TMF Panic)
Online services giant America Online (NYSE: AOL) has carved out a name by offering a popular way of navigating the vast expanses of the online medium. Now, the company is branching out to help users find their way around their own neighborhoods and the most direct route from Flagstaff - Tallahassee.
This morning, AOL announced that it is acquiring online mapmaker MapQuest.com (Nasdaq: MQST) in a stock swap valued at about $1.1 billion. Under the deal, each MapQuest share will be converted into 0.31558 of an AOL share, which works out to a value of $26.82 per share based on AOL's closing price yesterday. That's roughly the same price as the closing price of MapQuest's shares last Friday, prior to the stock's 21% run-up over the past two trading days ahead of the deal. Not surprisingly, MapQuest's shares quickly gave back most of this week's gain this morning as buy-on-the-rumor traders completed their time-worn Wall Street pas de deux by selling on the news.
As part of the required sales pitch to investors, AOL management stressed the important role it sees MapQuest playing on the local commerce level. "Eighty percent of purchases occur 20 minutes from home and MapQuest will give us additional strength in this critical local market, with maps and directions driving
new increases in local commerce,'' said AOL executive Ted Leonsis. The idea is to add AOL advertisers on the local level, weaving AOL even further into the fabric of its users' everyday lives.
New-age PR firms and consultants may get weepy upon hearing such a strategy, but the prime rationale behind the purchase most certainly is Internet business at its cut-and-dried best. MapQuest has one thing that every Internet company -- even a 20 million-member powerhouse like AOL -- covets: eyeballs, and lots of them. According to Media Metrix, MapQuest is a top 50 website in terms of reach. It also delivers its mapping services to almost 1,000 websites and is linked to by almost 170,000 sites.
In this sense, AOL is not looking for MapQuest to provide incremental earnings to the bottom-line right away. Rather, it wants the incremental eyeballs, which may be used to generate more earnings at some point down the road. Shelling out a chunk of the company for potential earning power instead of kinetic earning power is nothing new in the merger and acquisition game, but the stock-for-eyeballs aspect of deals like today's AOL-MapQuest link-up adds a new twist.
Valuing Internet companies is still more art than science -- some would say an abstract art at that -- but there is little doubt that eyeballs are playing a big role in determining today's valuations. A recent Credit Suisse First Boston report found that the largest sites on the Web also attract the most traffic. In an index of 400 pure-play dot-com companies, the report's authors also found that 40% of the total market capitalization of the index was supplied by the four largest firms.
If this "biggest site wins" theory continues to hold in the years to come, then buying up eyeballs might be the most effective way for large Internet firms like AOL to influence their short-term market valuations. But unless all of the old valuation rules of yesteryear have been thoroughly wiped out by the Internet, at some point earnings from those eyeballs will need to support those valuations.
Everybody Wants to Get Into the Venture Act
Dave Marino-Nachison (TMF Braden)
Hotcha! Enthralled by the never-say-down stocks of e-incubators CMGI (Nasdaq: CMGI) and Internet Capital Group (Nasdaq: ICGE), companies are flocking to the Internet venture business like Kleenex salesmen to The Schnoz himself. As a result, there are about as many ways for investors to play the sector as there are comic bits in which Jimmy Durante butchers the English language.
Best known are the big-dollar pure plays such as CMGI and Internet Capital Group. Let's throw Safeguard Scientifics (NYSE: SFE) into the mix as well, since it's a stock we've written about quite a bit.
But there are plenty of other ways to get involved, and the attraction is obvious. Companies in the venture business hope the cash they use to get new businesses rolling will eventually pay off many times over when they sell shares in those companies either to the public or to other interested parties. The practice, in theory, lets venture capitalists with new enterprises running low revenues and long losses rack up earnings out the wazoo even as their assets are just establishing their footing (see this old CMGI article for more).
What investors are essentially paying for here, though, is not so much a company and its operations but a management that has a sense for how, where, and when to allocate capital, evaluate business models, and gauge market sentiment. It's a different sort of risk than many investors are accustomed to, though the potential rewards are significant to say the least. But today's movement of venture companies to the public markets means investors can get a piece of the action with ease. Two of today's hot stocks highlight the interest in these opportunities.
Shares of Harris & Harris Group (Nasdaq: HHGP) jumped more than 40% today. The stock has risen rapidly over the last several weeks as the company has kept investors abreast of developments at its 12-company suite of investments, which includes stakes in online scientific equipment marketplace operator SciQuest.com (Nasdaq: SQST) and e-business software company Silknet Software (Nasdaq: SILK).
Hoping for a pop is Wit Capital (Nasdaq: WITC), which we covered in November when it bought SoundView Technology to bolster its research offerings. Investors are also watching everything from Winfield Capital (Nasdaq: WCAP) and FrontLine Capital (Nasdaq: RSII) -- formerly Reckson Services Indus. -- to lightly traded over-the-counter stocks like Cozmoz.com.
But venture capital isn't just the province of venture capitalists, as many companies have decided they want to cash in on the market's enthusiasm for fast-growth start-up businesses in a move not only to fire up revenues through investment-for-business partnerships but to reclaim investors' attention during bullish times.
Telecom billing and customer management systems developer Intasys Corp. (Nasdaq: INTA), meanwhile, rose nearly 30% today as its recently launched "incubator" division celebrated the first IPO filing of its investments: interWAVE Communications, a compact wireless systems developer, which filed to raise more than $86 million by selling 7.5 million shares to the public. Intasys owns 715,000 shares of the company, plus warrants to buy another 715,000 for a buck apiece.
Intasys is anything but alone in branching out. Just this month, we've noted in Foolish news columns how embattled information technology consultant Cambridge Technology Partners (Nasdaq: CATP) plans an initiative to build and fund start-up application service provider companies or e-business firms with eyes toward taking them public. And IT services giant EDS (NYSE: EDS) said even more recently it will establish a $1.5 billion fund for investing in Internet and business-to-business companies.
Individual investors trying to profit from the recent flood of money into new enterprises through publicly traded venture investors or companies with investment arms have a bevy of factors to consider as they need asses not only a company as a whole but its assets and its ability to develop them into viable businesses -- at least long enough to sell the shares. A good place to get started is always the Fool's message board: Nico's Internet Nook might be a good place to look for more information.
Nico's Internet Nook
Fool Plate Special, 11/1/99: "Wit Capital Buys Soundview"
Fool on the Hill, 4/20/99: "My Way to Connect"
More of Today's Best:FOOL ON THE HILL An Investment Opinion
The Price of a Dream
Selena Maranjian (TMF Selena)
-- It's not often that I read a book that's a page-turner and also gives me many insights into the business world. I just did, and I'd like to tell you a little about it. It's The Price of a Dream: The Story of the Grameen Bank by David Bornstein. As you probably know, we're in the last stretch of our third annual Foolanthropy charity drive here at the Fool. We asked members of the community to nominate charities and we selected five to raise money for this holiday season. One of the charities in our group is the Grameen Foundation USA.
FULL STORY >>
BREAKFAST WITH THE FOOL
Bell Atlantic Going, Going, Long
Richard McCaffery (TMF Gibson)
-- The Federal Communications Commission is expected today to grant local telecommunications company Bell Atlantic (NYSE: BEL) permission to enter the long distance phone market in the state of New York, making it the first baby bell to provide long distance service in its own market. If it happens -- and the FCC has been widely reported as leaning in favor of approving Bell's bid -- consumers and shareholders should see rewards quickly. The system isn't perfect, but competition always makes companies smarter and leaner.
FULL STORY >>
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See how far we've come and how far we have to go in this year's charity drive.