The Rule Breakers held in this portfolio are such active businesses that a day without news, such as today, is more novel than a day with news. Today, no major announcements from our companies hit the wire or, more appropriately, the "ether." Even on a holiday, this is surprising.
There will be plenty of announcements later this month, however, including the most revealing announcements that a company can make: quarterly results. Most of our companies announce business results this month. The following list of announcement dates and quarterly earnings per share estimates was compiled from the Fool's Quotes & Data pages, which I enjoy using. These pages have come to replace Yahoo! data for me with great effect. (This is thanks to the Fool techies on the fifth floor and the biz development Fools on the second floor -- thanks, Fools.)
Numbers in parenthesis below indicate that a quarterly loss is expected. Four of our eight companies should see a loss this quarter. Two of the companies (Iomega and 3dfx) were not expected to be at operating losses just months earlier, while the other two (Amazon and Excite@Home) were expecting losses all along.
Ticker Date Estimate
IOM 10/14/99 ($0.01)
AMGN 10/20/99 $0.49
AOL 10/20/99 $0.13
ATHM 10/20/99 ($0.01)
EBAY 10/26/99 $0.01
AMZN 10/27/99 ($0.28)
TDFX TBA ($0.07) (at least)
SBUX TBA $0.17
Excite@Home (Nasdaq: ATHM) is expected to lose one penny per share before turning profitable by one cent in the next quarter as it ramps to one million paying subscribers. Iomega (NYSE: IOM) is hoped to be profitable by the end of this year, too. As for 3dfx (Nasdaq: TDFX) -- well, that's anyone's guess. The company's last quarter was such a negative surprise that it's difficult to predict what may happen next. Adding more variables to the mix, last week 3dfx's CEO Greg Ballard resigned.
The resignation of a company's executive can be a sign of trouble or, as is often the case, it means the executive wants to move to something else. Perhaps the executive believes that he or she has found something better. In 3dfx's case, the resignation is said to have resulted from Mr. Ballard's belief that the company needs somebody with a new vision at the helm. He led 3dfx through three years of booming sales, and now the company needs fresh insight from new management in its next phase of growth. Of course, there had to be many issues behind the CEO's decision to leave, but that was the explanation given. It is a positive one. The company needs positive change. That often only comes about with disruption of the status quo.
The lack of a CEO is an obvious negative on the company's balance sheet right now, however (as it has been with Iomega), but this news doesn't change our sale policy. We sell a position when we believe that we have found something better. As you may know, we are working on a new buy or two for the BreakerPort.
Regarding the earning estimates listed above as we move into earnings season: just remember that one quarter doesn't make or break any company, and that the ideas of whisper numbers, meeting or beating estimates, and sweating over a penny or two are all ideas for the Wise. Think long term. Don't waste time thinking Wisely, or small.
The Mighty Giant, AOL, takes another Booming Step Forward
I recently mentioned an article in the October 11, 1999, issue of Fortune magazine that questioned whether or not America Online (NYSE: AOL) would become the largest ad revenue generator in the country. The article consisted of only a chart, but the numbers are interesting. The leading single media channel or entity by ad dollars generated is ABC at $3.369 billion in fiscal 1999. Second is CBS at $2.983 billion. Third is Time Inc. at $1.7 billion. Fourth is AOL, already, at $1.0 billion. In fifth place, ESPN trails AOL at $937 million. Now, if AOL grows as is expected, it could pass Time Inc. for third place within eighteen months.
In other growth-related news, America Online launched version 5.0 of its service last week. I downloaded the software onto my laptop in about 70 minutes at 56 Kpbs. It was a pleasant download. (While it downloaded, I went swimming.) AOL's new service is another step in the right direction: the direction of making AOL's service an integral part of subscribers' lives. The software also goes far to keep users on AOL rather than flipping out to the Web for content.
First, the welcome screen on version 5.0 lists all of AOL's channels conveniently on the left side of the page. This is very effective at reminding you that this content exists. It previously hid one page down. Now each time that you sign on, version 5.0 puts AOL content in front of your face and on your mind: "Weather, sure I'll check weather." "World News, sure, I'll check that." I'm already using AOL's content more after downloading 5.0. Information is a commodity. I won't visit CNN.com if I can easily get the news on AOL.
AOL also added an enhanced personal calendar to version 5.0, a better search engine (it searches both AOL and the Web), improved e-commerce offerings, and, among other things, "You've Got Pictures," brought to you in part by Kodak (NYSE: EK). The ability to easily send e-photos to friends will probably go far to attract and retain families over the years. When you develop your film at the drugstore, simply ask for e-delivery and give an e-mail box. All of the new features including You've Got Pictures are offered in an easy-to-use format, which is obviously one of AOL's best selling points. (A large selling point for me is the ability to sign on from almost anywhere in the world that I would go.)
In summary, America Online continues to do things well. It is making enough ad and commerce dollars that it may one day be the leader in the enviable, high-margin industry. It is signing and retaining more members than any other Internet Service Provider. It is providing addicting content and essential daily features (even as basic as e-mail) for the average consumer in a format that they're reluctant to leave. It is attacking the high bandwidth industry with an outlook of several years. It is progressing with "AOL Anywhere" and AOL TV.
Near the beginning of this year, I questioned in this column whether or not AOL could have a larger market value than Microsoft (Nasdaq: MSFT) in 10 years. The companies now stand at $135 billion and $490 billion, respectively. I said that I wouldn't bet against this outcome. Much will happen in 10 years. If AOL is still the leading gateway to the Internet in 2009, it could have hundreds of millions of members, up from about 20 million today. AOL is estimated to earn over $6.2 billion in sales this year, fiscal 2000. Microsoft should top $22 billion. As long as AOL continues to hit on all cylinders, this could be a fun race to watch.
(For close-up analysis of Internet-related investments, consider the Fool's subscription-based Internet Report.)
As always, share any thoughts about tonight's recap in our Rule Breaker Strategies board. And if you are looking into, or for, any new Rule Breaker prospects, the conversation always continues on our Rule Breaker Companies message board.