A Roiling Week
...from Amazon to 3Com
by Jeff Fischer
([email protected])
ALEXANDRIA, VA (June 26, 1998) -- If the stock market was a city, this week it was Paris -- exciting, mysterious, eclectic, and, at times, exclusive. If you aren't invested in certain Internet companies, this week you might have felt that you weren't much invested at all. Yet, at the same time, nobody could explain why these gilded shares always rose; people simply knew that with each passing day the urge to participate grew stronger.
Until the siren call softened. On Thursday and Friday, the waves that had carried Amazon and America Online higher finally subsided. In their wake, the Fool Port found itself up 9% this week vs. a 3% advance for the S&P and a 5% rise in the Nasdaq. Excitement surrounding the Internet roiled the market, as did news that Microsoft (Nasdaq: MSFT) won a spirited battle against everyone's Big Brother, and, finally, news that AT&T (NYSE: T) is merging with Tele-Communications Inc. (Nasdaq: TCOMA) also added whitecaps to the market's tidal pool.
Microsoft's stock has only risen since the company's victory, while AT&T's stock has only declined. AT&T made its announcement as if it was a great conquest, but the market responded as if AT&T had attacked the wrong foe.
How come?
Ma Bell's earnings could suffer for the next several years due to the merger, but beyond that, some investors believe that the company paid too much for TCI. Another concern is that AT&T has yet to explicitly define how it will use TCI to leverage its current business. The possibilities are many, but the strategy -- as presented -- sounds fluffy. An added twist is the fact that the Baby Bells can't compete in the long-distance market until proving that they have competition in their local markets. If AT&T enters local markets through TCI, the Baby Bells might be granted permission to attack AT&T's long-distance stronghold. Cannons are firing in both directions and walls will certainly sustain damage.
The $40 billion price that AT&T is paying for TCI might give cause to question the lower valuation currently placed on America Online (NYSE: AOL), a similarly modeled consumer service (albeit different in many ways, of course) with over 13 million subscribers. AOL's stock first declined on the TCI news, then turned and ran higher, and at last settled even -- dazed and confused.
Amazon.com (Nasdaq: AMZN) has been far from confused. It knew for the past two weeks that it had only one direction to go -- up. The relentless climb stalled on Thursday and reversed course ever so slightly on Friday (down 5%) after an analyst downgraded the stock from "buy" to "neutral" based on price. And who can blame him? On June 11 we rang the Triple Triangle for Amazon, the stock having become a three-bagger for the Fool Port. On June 17 the Quadruple Chime was rung. On June 24 the Quintuple Windchime sang in the breeze. This isn't your ordinary two-week stock movement, that's for certain, but it doesn't change our love of the business and its long-term potential -- long term being five years and beyond.
Admittedly, on the Internet landscape everything moves so quickly that one month is equal to six months of off-line business, so how successful Amazon will be in the future is known only by fortune tellers (you can call them at 1-900 numbers this weekend). Being ordinary Fools, we simply know that the company understands how people like to shop online, and we realize that Amazon is leading the world in consumer level e-commerce, showing everyone how it can improve and evolve. The company is burning and slashing the path that historians will study when they write books on how the Internet changed business. If you haven't read Tom Gardner's interview with Amazon's CFO, Joy Covey, here's the link to the transcript.
Behind the thick foliage that represents the Internet, standing by golden huts and smoldering campfire feasts of celebration, an Internet explorer can find the companies behind the scenes that make the networked world possible -- the Cisco Systems (Nasdaq: CSCO) and 3Coms (Nasdaq: COMS) of the world. This week 3Com announced earnings that were enough to boost the stock 16% the following day.
3Com released more new products in the past 12 months than it has in any other year of its history. The company won more Best in Show product awards as well. 3Com begins its fiscal 1999 with a greatly refreshed and expanded product line, and it also recently completed the implementation of a new inventory practice -- a practice that makes it one of the tighter run companies, inventory-wise, in the industry. Also, 3Com's accounts receivable has been reigned in and should continue to improve.
In short, the company believes that it has reached a turning point and that it's well positioned for existing and new market opportunities. We have a synopsis of the 3Com conference call now available for your perusal and records. I like to keep the conference call summaries on-hand (or simply know where to find them on the Fool) and look at them quarters hence to see if the company is progressing as it intended. For 3Com, the first quarter -- being three summer months -- is typically the slowest, but the company has high expectations for the fiscal year.
People should be able to empathize with 3Com's summer slowdown, seeing how summer has now firmly staked its claim over the entire country, with temperatures nearing triple digits in Northern Virginia. In addition to heat, on Friday much of Old Town Alexandria suffered power outages, taking the Fool down with it. Aside from reminding us, eerily, how helpless we can be without electricity, the dim silence also reminded one how great simplicity is -- and how, as fun as being online is, it can be just as enjoyable to read a book outside in a park. With the long Fourth of July weekend coming, some of us might have time for just that.
If you're looking for an investment book to read, FoolMart has arranged some of our most recommended books by group -- those books for beginners, those on personal finance, those on investing and stock research, those on careers, and so forth. Merely click here and scroll down to the ovals describing each grouping. There's enough good reading there for several weekends, and the only people that couldn't benefit from some of the books listed are those who can't read. If you've made it this far into the column, you can probably read. If you can't read these words, please e-mail me.
Have a Foolish weekend...
--Jeff Fischer
WE
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Day Month Year History FOOL -1.38% 22.49% 41.11% 373.58% S&P: +0.35% 3.89% 16.77% 147.21% NASDAQ: +0.34% 5.10% 19.05% 159.59% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 107.75 2863.07% 9/9/97 580 Amazon.com 19.11 94.13 392.52% 5/17/95 1960 Iomega Cor 1.28 5.63 339.31% 10/1/96 84 LucentTech 23.81 80.25 237.07% 8/12/96 130 AT&T 39.58 56.94 43.86% 2/20/98 215 DuPont 59.83 75.00 25.35% 1/8/98 115 S&P Depos. 95.91 113.56 18.41% 2/20/98 200 Exxon 64.09 72.25 12.73% 4/30/97 -1170*Trump* 8.47 7.63 9.96% 2/20/98 270 Int'l Pape 47.69 43.88 -8.00% 8/13/96 250 3Com Corp. 46.86 30.56 -34.78% 8/24/95 130 KLA-Tencor 44.71 28.00 -37.38% 1/8/98 425 3Dfx 25.67 16.00 -37.66% 6/26/97 325 Innovex 27.71 13.00 -53.08% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 76502.50 $73920.63 9/9/97 580 Amazon.com 11084.24 54592.50 $43508.26 5/17/95 1960 Iomega Cor 2509.60 11025.00 $8515.40 10/1/96 84 LucentTech 1999.88 6741.00 $4741.12 2/20/98 215 DuPont 12864.25 16125.00 $3260.75 8/12/96 130 AT&T 5145.11 7401.88 $2256.77 1/8/98 115 S&P Depos. 11029.25 13059.69 $2030.44 2/20/98 200 Exxon 12818.00 14450.00 $1632.00 4/30/97 -1170*Trump* -9908.50 -8921.25 $987.25 2/20/98 270 Int'l Pape 12876.75 11846.25 -$1030.50 8/24/95 130 KLA-Tencor 5812.49 3640.00 -$2172.49 8/13/96 250 3Com Corp. 11715.99 7640.63 -$4075.37 1/8/98 425 3Dfx 10908.63 6800.00 -$4108.63 6/26/97 325 Innovex 9005.62 4225.00 -$4780.62 CASH $11662.57 TOTAL $236790.76
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