April 19, 2000

Closing Market Numbers

DJIA          10,674.96    -92.46    (-0.86%) 
S&P 500        1,427.97    -13.64    (-0.95%)
Nasdaq         3,706.42    -87.15    (-2.30%)
Russell 2000     486.24     +0.15    (+0.03%)
30-Year Bond  105 16/32    +23/32   5.86 Yield

NOW 50          1980.11    -25.33    (-1.26%)

Today's Market Movers

Ups

Shares of CDMA chipset maker Qualcomm (Nasdaq: QCOM) rose $2 9/16 to $114 3/4 today after the company announced pro forma fiscal Q2 earnings per share of $0.26, up from $0.18 last year and two cents better than Wall Street's projected estimate. Revenues rose 16% year-over-year to $649 million. "Second-quarter revenues reflected lower shipments in our chip business," said Chairman and CEO Irwin Jacobs. "However, we believe industry inventories have returned to normal levels and we expect a strong second half with record mobile station modem (MSM) chip shipments."

Rule Making fashion dictator Gap Inc. (NYSE: GPS) bagged $2 to $39 1/4 today as Prudential Securities raised its rating on the shares to "strong buy" from "accumulate." Shares of the powerful West Side Story re-enactor have fallen recently amid disappointing March same-store sales and COO John Wilson's resignation.

Drugmaker Warner-Lambert's (NYSE: WLA) stock rose $6 7/8 to $114 3/8 today as the company said first-quarter EPS before items was $0.58, up from $0.43 a year ago and two cents ahead of market projections on strong sales of its Lipitor cholesterol drug, among others. Betrothed Pfizer (NYSE: PFE) moved up $2 1/4 to $41 13/16 today -- here's a link to one Fool's take on that story. American Home Products (NYSE: AHP) also reported earnings today, grabbing $2 3/4 to $59 1/8 after it said Q1 EPS met estimates at $0.48. Merck (NYSE: MRK), meanwhile, won $2 3/4 to $69.

Mobile online data provider InfoSpace (Nasdaq: INSP) advanced $4 3/16 to $59 7/8 following the announcement that it snared Vodafone AirTouch (NYSE: VOD) U.S./Asia Pacific CEO Arun Sarin and named him its CEO. Naveen Jain will remain chairman and chief strategist, creating a tandem the company hopes will combine vision and execution. "From the vantage point of having been the head of Vodafone's global wireless Internet business," Sarin said, "I can tell you that InfoSpace is best positioned to take advantage of the huge opportunity created by the convergence of the two fastest growing industry segments, Internet and wireless." Here's Fool Matt Richey's take on InfoSpace.

Scalable Internet search and caching software developer Inktomi Corp. (Nasdaq: INKT) advanced $17 1/8 to $133 1/8 after the company reported its first profitable quarter, turning in fiscal Q2 EPS of a penny per share. Wall Street was looking for a two-penny loss. Inktomi is another company that wants to find a niche for its products and services in the wireless market, the company announcing several such agreements during the quarter.

Downs

Information gathering and analysis software company Sagent Technology (Nasdaq: SGNT) dropped $10 29/32 to $7 7/32 after the company said Q1 net losses were $0.07 per share. Two analysts questioned by First Call were looking for a $0.04 profit. Two agreements that might have added $3.5 million to the topline -- the company's total revenues were $14.5 million -- didn't qualify for recognition in the quarter, though the company said the agreements are signed and it expects to report those revenues later this year.

It wasn't all good news for the drugmakers, as reported above. Shares of Bristol-Myers Squibb (NYSE: BMY) were dumped for a loss of $14 1/2 to $50 5/8 after the company withdrew its new drug application (NDA) with the FDA for Vanlev. Bristol-Myers now hopes to resubmit early next year. Vanlev has come under question lately because, the company said, of "the comparative incidence and severity of an infrequent side effect known as angioedema." Angioedema is a swelling that generally affects the face. Vanlev, which earned priority review status from the government earlier this year, is being developed to help regulate blood pressure.

Computing products maker Apple Computer (Nasdaq: AAPL) dropped $5 3/4 to $121 1/8 today ahead of its fiscal Q2 earnings announcement. After the close, the company posted EPS of $0.88 (excluding an investment-related gain), topping the First Call mean estimate of $0.81. The company also set a two-for-one stock split, its first since 1987.

Communications network transmission and access products maker Tellabs (Nasdaq: TLAB) fell $4 1/4 to $45 1/16 as the company followed through on its early April earnings warning by reporting pre-item EPS of $0.29, a penny better than last year but flat with estimates. Higher-than-exepected costs and component availability problems hurt margins, something that's been felt industrywide. (Click here for a Foolish take with a bit more meat on the bones.)

Secure electronic transactions products company Entrust Technologies (Nasdaq: ENTU) said today that first-quarter net income was $0.06 per share, a nickel ahead of last year's Q1 but just flat with market projections. Entrust shares retreated $12 3/8 to $44 3/4 today. The company also announced plans to exchange about 10.2 million of its shares -- or $580 million's worth, based on last night's closing prices -- for private e-commerce software company enCommerce.

Today's Top Stories

InsWeb Looking Anything But Safe
By Brian Graney (TMF Panic)

If there were ever an industry that could benefit from rationalization and simplification, it is the American insurance industry. Hundreds of providers, myriad types of policies, varying degrees of quality from one insurer to the next -- who needs all of this? With its attributes as a low-cost platform and a vaporizer of inefficiency, one would think that the Internet would make the ideal dancing partner for the insurance business. However, as online insurance facilitator InsWeb Corp. (Nasdaq: INSW) has discovered to its chagrin, getting the separate worlds of insurance and the Internet to tango is about as hard as getting Al Sharpton to swing dance with David Duke.

This morning, InsWeb reported a Q1 loss of $0.37, about par for the course for an early stage Web company and actually a bit better than the First Call mean estimate had anticipated. Revenues, which are mostly derived from transaction fees from the comparison shopping services offered on the firm's website, rose 34% sequentially to $8.6 million.

However, it may be a long time before InsWeb investors see a comparable level of quarterly revenues again. Apart from the Q1 financial nitty-gritty, InsWeb also revealed today that State Farm Insurance has decided not to renew its contract with the company. This is a very big deal, as State Farm is the country's largest provider of auto and homeowners insurance and accounts for about 30% of InsWeb's revenues. But starting May 1, those State Farm-derived revenues will evaporate, leading InsWeb to forecast that its revenues will drop to about $5 million in Q2. Not surprisingly, the news wasn't well-received and the company was pummeled in early trading, its shares entering the unfriendly confines of penny stock-land.

Leaving the dramatic hit to the firm's topline aside for a moment, the loss of State Farm is a very ominous development for InsWeb and for other upstarts looking to carve out their own part of the online insurance services business. InsWeb said the reasoning behind the move was "specific to [State Farm's] own distribution model," which makes sense considering the insurer uses its well-established network of agents as its main selling channel. InsWeb is largely still a referral service, although it is trying to expand beyond that to offer actual closing services to Web users on behalf of insurers. Currently, the firm offers this service for seven auto insurers in several Western states.

However, such a strategy runs counter to how State Farm benefited from InsWeb, which it mainly used to cull contact information on sales leads that would then be routed through to one of the insurer's local agents. Allowing InsWeb to close State Farm policies would undercut one of primary functions of the agency network, which the insurer has already spent a considerable amount of effort establishing and, in fact, can be considered one of its main competitive advantages.

In InsWeb's case, one of its key advantages in the nascent -- some might say stillborn -- online insurance space was its position as an early mover with ties to many of the most prominent insurers out there. Without State Farm, that advantage has been seriously eroded. Moreover, despite recent efforts to diversify, the firm continues to rely on the auto insurance market for about three-quarters of its business. Needless to say, this area is brutally competitive and is not exactly doing very well at the moment. On top of that, InsWeb's plan to offer more agent-like services runs the very real risk of stepping on the toes of the online efforts of the larger direct private passenger insurers like Progressive (NYSE: PGR) and Berkshire Hathaway's (NYSE: BRK.A) GEICO unit. At this early stage in the business' life, the only thing safe to say is that InsWeb is sure to face a very rough and risk-filled road ahead.


FOOL PLATE SPECIAL An Investment Opinion
LifeMinders Stacking Up Subscribers
By Dave Marino-Nachison (TMF Braden)

The front page of e-mail appointment tracking company LifeMinders.com (Nasdaq: LFMN) sports the corporate logo at the top with "backslashSanity" written below it. Surprisingly -- to me, anyway -- the URL "www.LifeMinders.com/Sanity" turns up diddly. But that's neither here nor there, particularly with the shares rising today on upbeat first-quarter growth numbers.

LifeMinders has put a clever spin on a fairly common phenomenon: opt-in e-mail direct marketing, through which users actually volunteer to receive advertisements in their mailboxes. The LifeMinders twist is that it attaches its commercial messages to content in categories a user signs up for -- including specific reminders such as "walk dog" and "buy Mom flowers" -- in essence couching them as a useful service rather than an entreaty to buy.

But it is still an advertising-supported online marketing company. What's remarkable about LifeMinders, though, is how quickly it's been able to build up its member base since taking its current form in late 1998. (Its product was previously distributed by diskette.) We noted its exponential run to 7 million subscribers through the end of 1999 in a March Daily Double column. In Q1 the number of subscribers ballooned to 12.5 million, or 78% sequential growth (that number is net, it should be noted).

That's an impressive number by most measures, but what does it mean to investors? One way to consider it might be to look at how that number might eventually impact the bottom line -- should that line ever rise above water into the world of profitability. Such a measure could be taken by looking at the growth in gross profits, in real-dollar terms, compared with its growth in sales and marketing expenditures on a sequential-quarter basis. In Q1, for instance, gross profits were about $10.3 million, compared with sales and marketing costs of $29.2 million (about 85% of operating expenses).

And so gross profits grew 37% from Q4, compared with about 34% for sales and marketing expenses. That's the sort of sign a LifeMinders investor might like to see: growth in profits per sale outpacing the growth in the cost of generating those sales. Whether such a trend might get the company to profitability in the foreseeable future is another question.

Here's a stab in which the practical problems should be glaringly obvious: Assuming the 37% and 34% numbers for quarter-to-quarter gross profit and sales and marketing expense growth, respectively, are consistent heading into the future, we'd be almost halfway into the 21st century before LifeMinders heads into the black with $38 trillion in gross profits.

Let's derail that train of thought right there before somebody gets hurt. Companies such as LifeMinders, assuming they are managed by folks who care more for their business plan than out-of-the-blue arithmetic, hope their marketing dollars will have a bit more staying power than just one quarter. (Remember, too, that extrapolating one quarter's data for purpose of prediction can be suicide for investors. LifeMinders, for its part, advertised during the Super Bowl.)

That's why it's called customer acquisition: customers join you, they like you, they stay and continue to help you collect revenue even after you've paid to get them on board. That's achieved by creating a quality service, product, and brand: "Brands," you may remember, are burned on livestock and never come off, and LifeMinders, et. al., hope its customers don't drop it.

Further, there are only so many customers LifeMinders -- about 6 billion people live on Earth, many without access to the Web or wireless devices -- can acquire or pay to acquire, so the company must be keenly aware of its market opportunity. The idea, naturally, is to have hypergrowth last only so long so that a company may normalize its costs and create recurring revenue streams.

Still, it's safe to assume LifeMinders is counting on even more aggressive revenue growth figures in the near-term on top of normalization or even reduction of cost ratios. If, for instance, LifeMinders was able to grow gross profits at 40% each quarter while allowing only 20% cost growth, the company could head into the black in two years, well ahead of its projected cash wipeout based on the company's balance sheet and a roughly calculated burn rate (another imperfect figure for investment use, based as it is purely in arithmetic).

Clearly, the rampant growth and busy spending of companies such as LifeMinders presents a problem for investors trying to create reasonable forecasts of performance in a time of unusual expansion not meant to last indefinitely. Adding to that the question of how to value such a company when, or if, it reaches nirvana is yet another puzzler, and that matter has certainly weighed heavily on investors drawn deeply into the red these past few weeks. Anyone with a simple solution is probably selling something.

Now more than ever, the importance of understanding precisely what a company does and how it intends to spin its concept into gold -- and more gold than it spends -- is paramount. Keep in mind that with decreased predictability comes increased risk. Though opportunity certainly accompanies market risk and volatility, there are always alternatives for risk-averse investors loathe to make decisions based on information they're not comfortable with.

More of Today's Best

FOOL ON THE HILL An Investment Opinion
Trading In Your IRA?
By Bill Mann (TMF Otter)

One of the big arguments against frequent trading of stocks is that it is tax inefficient. Proponents of long-term buying and holding of companies point to the fact that as long as they do not sell, their capital is allowed to grow without being taxed. Taxes, coupled with brokerage fees, are known as friction costs. These two items are the money that one must pay in order to get into or out of equities.
FULL STORY

 
Harrah's Plays to Win
By Brian Lund (TMF Tardior)

I love casinos. It's got to do with my love of cash flow. Casinos are a place where you can literally see cash flowing, accentuated by lights and bells and whistles. It doesn't even matter to me that it's cash flowing out of my pocket and into that little box by the dealer. I just love watching it happen. Lots of cash moves through casinos, but they don't always hold onto it. Capital expenditures run high in the industry, as theme hotels strain belief to become glitzier. Harrah's Entertainment (NYSE: HET) is one casino operator that has kept its focus on geographic expansion and return on invested capital.
FULL STORY
 
BREAKFAST WITH THE FOOL
No Surprises at Intel
By Brian Graney (TMF Panic)

We're at the apex of the first-quarter earnings reporting season, and there is likely to be much discussion today about the Q1 results out of chipmaker Intel Corp. (Nasdaq: INTC). This is despite the fact that, for the most part, the Santa Clara, California-based giant didn't have anything particularly surprising to say. Last night, the firm turned in Q1 EPS of $0.71 (excluding acquisition charges and a $0.17 per share tax-related gain), up 22% from a year ago and ahead of the First Call mean estimate of $0.69.
FULL STORY

 
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