Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>

Imagine That!
The future. Plus, eBay, ATHM, SBUX

by Jeff Fischer (TMFJeff@aol.com)

Alexandria, VA (July 23, 1999) -- We are witnessing a change the scope of which we can't yet grasp. However, we can try.

Increasingly, people are going to think in terms of the "online" world and relate to one another in online terms, because the online world will represent universality. Therefore, having a leading brand name online stands to be much more powerful than having one off-line. Online, use of a popular product -- or website -- can spread at unprecedented rates. Need evidence? AOL's ICQ messaging service rose from nothing to 38 million users in a few years.

Alongside results, future "possibilities" do matter to a stock price. Investors try to value every possibility. Possibility has been driving Internet-based stocks from day one; any news that supports a possibility feeds the fire. News and possibilities are spreading more rapidly than was anticipated.

Imagine the future online. Imagine universal automation and personalization. Imagine being recognized by every site that you visit, and therefore being interested in almost all of the information (or products) that a site personally serves you. Imagine never needing to think about buying milk, butter, eggs, or socks again.

The first three items (milk, butter, and eggs) will be delivered to your door every week in the amount that you usually need, unless you instruct otherwise any particular week. The last item (new socks) will be delivered to you every six months. Jeans and slacks can be delivered every season, too -- and they will fit perfectly every time (unless you forget to share that you've lost or gained weight in the past year). Everything that can be automated, will be. Time will be freed of petty tasks.

What to do with new time?

Imagine working for several companies at once. The Internet makes marketing one's skills easy. It also provides means to work for a New York company in the morning, a California company at night, and a European company during your spare time.

Everyone who wishes to will run a homepage marketing their skills and offerings -- essentially creating a personal online brand. Everyone will be immediately accessible. A commodity. (Don't shiver.) A company can enter specific qualities that it seeks for a project and browse worldwide candidates. This is already happening. This will emerge in earnest for writing projects of all kinds, software projects, and other work that can be safely outsourced and accomplished remotely.

The Internet will become the primary means of communication. Most families will have a homepage. When you want to speak with them, you'll approach your always-on high-speed Internet access device and open their homepage. The page will immediately tell you if they're available. Click a button on their homepage to ring them through their always-on Internet connection. In a moment, they might appear on the screen in high-quality video, and then in audio. "Hello! How are you!?" Both the video and audio technology already exists. Broadband access just needs to proliferate.

If the person you're contacting is already talking to someone, they'll have the option of starting a second video and audio conversation with you, too, and you can all talk; or else, you'll be told they're not available. The page will say, "Mrs. Foolhead is not available. Your visit has been registered, however, and she'll return the visit if you wish." You'll click, "Yes," and then you'll go cook dinner using a recipe from the Internet that resides on a small Internet-surfing device (in the kitchen) that comes pre-formatted with hundreds of cooking sites and recipes (and allows random Web surfing, too).

In the washroom, above the medicine chest, will be another small Internet-access device. This one will focus on serving health and prescription advice and information. Click a button to get any refill. Beside your front door is the weather and traffic report on another small Internet device. In fact, Internet devices could be as prevalent as electrical outlets are now. There is also the Internet device in your car's dashboard, which is essential for maps and traffic -- and for dining and hotels when traveling.

Your stereo consists of Internet access and two speakers. Through the Internet, you access an endless database of music. Your television viewing is also programmable. You can watch any movie or old television show (Magnum P.I. comes to mind) that you access online for a small fee. Maybe via Amazon or AOL TV.

Will technology be too invasive? Too omnipresent? Is it already becoming so? Cell phones, pagers, laptops, hand-helds. There is even an Instant Message service, right now, that can contact you when you're off-line. As long as your computer is turned on, this service generates enough of a charge to contact you through the phoneline even while you're off-line. "Hello. Brian is trying to Instant Message you. Please sign on if you wish to talk." Of course, always-on broadband will make this unnecessary.

By the way, America Online
(NYSE: AOL) announced that it will block Microsoft's (Nasdaq: MSFT) new instant messenger technology from working with its ICQ technology. AOL blocks Yahoo!'s (Nasdaq: YHOO) instant messenger service, too. "You can't use our infrastructure," AOL says. Fair enough. And given ICQ's lead, it makes sense to raise walls around it.

Returning to the future: In the future, Microsoft will continue to launch copycat products two years after another company has done so.

How do you foresee the future as being? How will technology improve, invade, or provide more freedom in our lives? Post your visions on the Rule Breaker message board! We'll highlight your future-telling posts here in... well, in the very near future.

Breaker News

eBay (Nasdaq: EBAY) is expected to report second-quarter results on Monday after the market closes. After more than 24 hours of site downtime this quarter, the consensus estimate is for $0.03 per share in profit vs. $0.02 last year and $0.05 in the first quarter. Second quarter sales are expected to rise over 320% to $37.5 million. This compares to $8.9 million one year ago and $34 million in the first quarter. To help combat glitches and withstand traffic, eBay spent over $10 million on hardware this quarter, more than three times what it spent in the first quarter.

eBay's stock has declined since the June 10 blackout. It traded at $182 before the 22-hour glitch. Now, at $107, the company is valued at $13.5 billion and at 284 times year 2000 earning estimates. Given that earnings per share should grow over 100% annually the next few years, well... we shall see. Our eBay stock certificate reads, "Do not discard until 2004 or later, unless seriously damaged." It remains under lock and key.

Starbucks (Nasdaq: SBUX) rose on analyst upgrades following quarterly results. Yesterday, CEO Howard Schultz reaffirmed that the retail coffee business is Starbucks' primary focus, and the company will be conservative, to a point, with its online initiatives. Starbucks will not pursue an online "acquisition" strategy now.

It appears that Excite@Home (Nasdaq: ATHM) is issuing amusing press releases whenever another company enters or readdresses the broadband market. Why? Excite@Home is publicly arguing that broadband competition is alive and rampant. Check out the attitude.

Weekend Reading and Listening Pleasure

For reading, visit the Fool's Midyear Review, as well as the new Fool Special on AT&T and broadband access, written by Louis Corrigan.

In listening, be sure to catch the latest waves from the weekly Fool Radio show. This Saturday, Tom and David interview Tim Koogle, CEO of Yahoo!, and Keith Spillman, a MP3.com (Nasdaq: MPPP) investor. Or, an ex-MP3 investor, we should say. Keith is a musician who received pre-market MP3 shares and "flipped them" on day one. Hear his story and see what Tom and David have to say. (Scold, or congratulate?) Meanwhile, check out Keith's Web page.

Have a Foolish weekend!

- Jeff Fischer

07/23/99 Close
Stock  Change    Bid 
------------------ 
AMGN  +3 3/16    75.38
AMZN  +7 3/8    114.56
AOL   -3 1/8    107.50
ATHM  +  13/16   46.06
CAT   +  1/2     61.00
CHV   +  3/16    93.81
DD    -  3/4     71.00
DJT     ---       4.81
EBAY  -  7/8    107.81
GT    -  9/16    55.19
IOM   -  1/8      4.19
SBUX  +1 15/16   25.88
TDFX  -  1/8     13.88


                  Day     Month  Year   History   Annualized 
      R-BREAKER  +0.94%  -6.22%  20.64% 1110.90%   65.27%
        S&P:     -0.30%  -1.16%  10.97%  210.27%   25.62%
        NASDAQ:  +0.30%   0.23%  22.79%  273.85%   30.43%


    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    107.50   11728.13%
   9/9/97  1320 Amazon.com     6.58    114.56    1641.27%
  5/17/95  1960 Iomega Cor     1.28      4.19     227.04%
 12/16/98   580 Amgen         42.88     75.38      75.80%
  12/4/98   900 Excite@Hom    28.04     46.06      64.27%
  4/30/97 -1170*Trump*         8.47      4.81      43.17%
  2/23/99   300 Caterpilla    46.96     61.00      29.89%
  2/20/98   260 DuPont        58.84     71.00      20.66%
  2/23/99   180 Chevron       79.17     93.81      18.50%
  2/23/99   290 Goodyear T    48.72     55.19      13.29%
  2/26/99   300 eBay         100.53    107.81       7.25%
   7/2/98   470 Starbucks     27.95     25.88      -7.44%
   1/8/98   425 3Dfx          25.67     13.88     -45.94%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 236500.00  $234500.53
   9/9/97  1320 Amazon.com  8684.60 151222.50  $142537.90
 12/16/98   580 Amgen      24867.50  43717.50   $18850.00
  12/4/98   900 Excite@Hom 25236.13  41456.25   $16220.12
  5/17/95  1960 Iomega Cor  2509.60   8207.50    $5697.90
  4/30/97 -1170*Trump*     -9908.50  -5630.63    $4277.88
  2/23/99   300 Caterpilla 14089.25  18300.00    $4210.75
  2/20/98   260 DuPont     15299.43  18460.00    $3160.57
  2/23/99   180 Chevron    14250.50  16886.25    $2635.75
  2/26/99   300 eBay       30158.00  32343.75    $2185.75
  2/23/99   290 Goodyear T 14127.38  16004.38    $1877.00
   7/2/98   470 Starbucks  13138.63  12161.25    -$977.38
   1/8/98   425 3Dfx       10908.63   5896.88   -$5011.75

                              CASH   $9924.87
                             TOTAL $605450.50
 
Note: The Rule Breaker Portfolio was launched on August 5, 1994, with $50,000. Additional cash is never added, all transactions are shared and explained publicly before being made, and returns are compared daily to the S&P 500 (including dividends in the yearly, historic and annualized returns). For a history of all transactions, please click here.

</THE RULE BREAKER PORTFOLIO>

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