<THE FOOL PORTFOLIO>
MONDAY MADNESS!
And the five C's in "Internet"

by Jeff Fischer (TMFJeff@aol.com)

ALEXANDRIA, VA (Nov. 30, 1998) -- Despite a turbulent Monday, the Fool Port broke records for November, adding over 29% in 20 trading days. But today was MONDAY MONDAY MONDAY MADNESS!... and we don't mean at the local car dealership.

The portfolio gave back 6% while Nasdaq declined 3%. Following the swift 20% gain Nasdaq experienced in recent weeks, this isn't surprising. What we're seeing, my friends and fellow Fools, is little more than volatility. There was no grand news to account for the decline, just as there was little news to account for the rise.

In the "what's brewing" department, Starbucks (Nasdaq: SBUX) reported revenue of $117 million for the four weeks ended November 22, 1998, an increase of 30 percent from $91 million for the same period last year. Same store sales (the number that Wall Street cares about in the short-term because it believes it indicates how sustainable long-term earnings growth could be) increased 6 percent for the four weeks ended November 22, 1998. This growth is probably strong enough to please the otherwise trigger-happy holders of the stock.

Let's talk America Online (NYSE: AOL) and the Internet. In The Motley Fool's Industry Focus 1999 (available December 15th), we break the Internet industry into the 5 C's:

  1. Connection
  2. Content
  3. Commerce
  4. Commercials*
  5. Community

(*Ad banners are heading towards becoming moving and interactive commercials -- more than just ad banners.)

The best Internet companies capture the revenue streams provided by all four of the primary C's, and some capture connection fees, too -- though that represents a different sort of business model.

Connection: There are an estimated 62 million people online in the U.S. as of November 1998, and this number is expected to climb to at least 150 million by 2002. Of the 62 million potential Fools currently online, it's estimated that 25% first got Internet access in 1997.

Content: At the end of 1998, pay-per-view content accounted for merely 4% of subscriber-related revenue, but by 2001, this category should grow to 15% of subscriber-based revenue.

Commerce: Online commerce exploded in 1998 and easily represents the largest revenue stream for the Internet industry. It's expected that $13 billion will be spent on online consumer commerce in 1998, and e-commerce is expected to grow by 200% annually for the foreseeable future. The $13 billion estimate represents less than 1% of the total U.S. retail market, so this is just the beginning. By the year 2003, it's projected that online commerce could grow to $3.2 trillion, or 5% of all worldwide sales.

Commercials: It's estimated that $597 million was spent on online advertising in 1997, and over $850 million will be spent in 1998. However, four leading Websites (Yahoo, Excite, Infoseek and Lycos) received a full 25% of 1997's ad dollars. This is similar to the situation with the big three television networks and with online retailers -- the top ten online retailers account for 50% of all online commerce. (This possibly points to the relative ineffectiveness of low-price-seeking ShopBots.)

Overall, advertising is a $115 billion business in the U.S., with less than 1% of that spent online.

Community: This final "C" ties it all together. Without a steady community, an Internet site can't leverage much value from its www address.

Of the five C's, America Online and Yahoo! are leading the way in tapping into all of them. Industry Focus goes into much more detail and shows how one might value each C -- or each revenue stream -- by applying the model to America Online.

Who else is leading the way in the C's of the Internet? Well, what is everyone looking at online while at home and at work? Take a look:

Top 25 WEB SITES - AT WORK
Numbers Obtained from Media Metrix, Inc.
October 1998 Measurement Period (10/1/98 - 10/31/98)

Rank  Web Site                 % Reach
1     yahoo.com                48.9
2     netscape.com             39.8
3     microsoft.com            38.7
4     aol.com                  32.9
5     geocities.com            25.9
6     excite.com               25.3
7     infoseek.com             22.7
8     lycos.com                22.4
9     msn.com                  20.7
10    Altavista Search Svcs.   20.7
11    zdnet.com                13.0
12    hotmail.com              12.4
13    real.com                 12.1
14    bluemountainarts.com     12.0
15    amazon.com               11.8
16    tripod.com               11.7
17    xoom.com                  9.6
18    angelfire.com             9.3
19    msnbc.com                 9.3
20    weather.com               9.3
21    switchboard.com           9.2
22    cnn.com                   9.0
23    Snap.com                  8.7
24    hotbot.com                7.8
25    espn.com                  7.8

Top 25 WEB SITES - AT HOME
Numbers Obtained from Media Metrix - Inc.
October 1998 Measurement Period (10/1/98 - 10/31/98)

Rank  Web Site                 % Reach
1     aol.com                  42.9
2     yahoo.com                39.4
3     microsoft.com            28.9
4     geocities.com            26.6
5     netscape.com             25.5
6     excite.com               19.8
7     lycos.com                16.9
8     msn.com                  14.9
9     tripod.com               14.4
10    angelfire.com            14.3
11    infoseek.com             13.7
12    hotmail.com              13.2
13    Altavista Search         13.0
14    xoom.com                 12.2
15    bluemountainarts.co      10.4
16    real.com                  9.2
17    amazon.com                8.8
18    zdnet.com                 8.6
19    Snap.com                  7.8
20    bonzi.com                 7.8
21    switchboard.com           7.7
22    hotbot.com                7.7
23    preferences.com           6.7
24    simplenet.com             6.7
25    Disney Online             6.5
(Thank you to TMF Nico for the lists.)

The Rule Breaking Fool Port didn't make its sells yet, but we'll do so in the next three days, if not sooner.

If you want to hear from other Fools about today's declining stock market, please visit the communion of bears. (Just remember, that folder is always bearish!)

Have a Foolish evening!

--Jeff Fischer

Order your copy of David and Tom Gardner's new book, Rule Breakers, Rule Makers, in advance. This Simon & Schuster beauty doesn't arrive until January, but you can reserve your copy today! The first half of the epic book, on Rule Breakers, elucidates the Fool Port's investment style; the second half, on Rule Makers, further explains Cash-King investing.

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Bookmark Live Fool Port Quotes

11/30/98 Close

Stock Change Bid ---------------- AMZN -24 5/8 192.00 AOL -7 87.75 T - 7/8 62.19 DJT + 1/8 5.06 DD -1 1/8 58.88 XON + 5/8 75.00 INVX +1 16.00 IP + 5/16 43.44 IOM + 5/16 7.69 KLAC -2 7/8 34.06 LU -2 5/16 86.13 SBUX - 5/8 46.13 COMS -1 15/16 38.69 TDFX - 7/16 12.81
Day Month Year History Annualized FOOL -6.70% 29.42% 107.03% 594.81% 56.63% S&P: -2.40% 5.91% 19.91% 153.85% 24.06% NASDAQ: -3.32% 10.06% 24.15% 170.70% 25.92% Rec'd # Security In At Now Change 8/5/94 1420 AmOnline 1.82 87.75 4726.15% 9/9/97 580 Amazon.com 19.11 192.00 904.67% 5/17/95 1960 Iomega Cor 1.28 7.69 500.39% 10/1/96 84 LucentTech 23.81 86.13 261.75% 8/12/96 130 AT&T 39.58 62.19 57.13% 4/30/97 -1170*Trump* 8.47 5.06 40.22% 2/20/98 200 Exxon 64.09 75.00 17.02% 2/20/98 215 DuPont 59.83 58.88 -1.60% 2/20/98 270 Int'l Pape 47.69 43.44 -8.92% 8/13/96 250 3Com Corp. 46.86 38.69 -17.45% 7/2/98 235 Starbucks 55.91 46.13 -17.50% 8/24/95 130 KLA-Tencor 44.71 34.06 -23.82% 6/26/97 325 Innovex 27.71 16.00 -42.26% 1/8/98 425 3Dfx 25.67 12.81 -50.08% Rec'd # Security In At Value Change 8/5/94 1420 AmOnline 2581.87 124605.00 $122023.13 9/9/97 580 Amazon.com 11084.24 111360.00 $100275.76 5/17/95 1960 Iomega Cor 2509.60 15067.50 $12557.90 10/1/96 84 LucentTech 1999.88 7234.50 $5234.62 4/30/97 -1170*Trump* -9908.50 -5923.13 $3985.38 8/12/96 130 AT&T 5145.11 8084.38 $2939.27 2/20/98 200 Exxon 12818.00 15000.00 $2182.00 2/20/98 215 DuPont 12864.25 12658.13 -$206.13 2/20/98 270 Int'l Pape 12876.75 11728.13 -$1148.63 8/24/95 130 KLA-Tencor 5812.49 4428.13 -$1384.37 8/13/96 250 3Com Corp. 11715.99 9671.88 -$2044.12 7/2/98 235 Starbucks 13138.63 10839.38 -$2299.25 6/26/97 325 Innovex 9005.62 5200.00 -$3805.62 1/8/98 425 3Dfx 10908.63 5445.31 -$5463.31 CASH $12005.75 TOTAL $347404.94

</THE FOOL PORTFOLIO>

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