Iomega Crashes
And that Amazing Amazon

By Paul Larson (TMF Parlay)

CHICAGO, IL (June 18, 1999) -- What a difference a week makes. Last Friday the "Internet stocks" were in mid-meltdown. (Like David, I'm really starting to wonder if there really is such a thing as an "Internet stock.") Monday was one of the worst days in this portfolio's history where the portfolio lost almost 9% of its value in a single day.

But now, you can just smell the change in attitude the market has had. Jeff had the strength to write a column on Monday where the headline was "Internet Stocks Decline... Yawn." Just as many investors were panicking and running over themselves to get to the exits, we Fools just stayed right where we were and enjoyed the fireworks. Bad days will come (like Monday) and good days will come (like Tuesday), and it's important to keep one's head through the madness. Rule Breaker investing is an inherently volatile strategy, and one should be amply prepared for the wild swings lest you get thrown overboard at an inopportune time.

Since today is Friday, let's take inventory of exactly where the portfolio ended the week:

                Day     Week    Year  
Rule Breaker:  +0.07%  +6.83%  +24.09%
S&P:           +0.22%  +3.80%   +9.83%
Nasdaq:        +0.76%  +4.72%  +16.91%

Iomega gets erased, again

The story of the day has to be Iomega. In yet another round of bad news, Iomega announced today that it was going to lay off 450 of its employees in order to cut costs. The company will take a $45 million charge, about $0.11 per share, to complete the downsizing.

The layoffs themselves weren't the bad news per se; it was the news that the company will report another operating loss in the quarter that really spooked investors. The company announced that it expected to lose between $0.05 and $0.10 per share in the current quarter before the restructuring charge. Analysts were calling for a break-even quarter before the news become public.

Iomega blamed weakness in its Jaz line, delays in the new Clik! drive rollout, as well as component shortages for Zip on the shortfall. The company also said that revenue would be sequentially lower than the $386.2 million in sales it booked last quarter, which will make the 5th straight quarter where Iomega's sales were lower than what they were in the year prior.

There's no doubt that the once-mighty Iomega has some major problems at this point. Where the company once represented over half of this portfolio's value back in 1996, the Iomega shares now compromise only 1.2% of the Rule Breaker's assets. Even if Iomega were to get chopped in half again (a sad but distinct possibility), it wouldn't even move the portfolio a whole percentage point.

This won't be the last you will hear about Iomega, for there are plenty of lessons to be learned by the Rule Breaker's mistake of holding on to the company too long. This wasn't the first gaffe the portfolio made (Anyone remember ATCT?), and it won't be the last. One of the many reasons we are here is so that you, dear Fool, can learn from our mistakes.

Excite@Home... A good week

While Iomega slammed into reverse, Excite@Home (Nasdaq: ATHM) had an excellent week and made up some lost ground. Not only did the stock split 2-for-1, but the shares also recovered nicely from Monday's panic bottom.

While many following Excite@Home were quite dismayed at Portland's attempts to open its cable access to other ISPs a few weeks ago, a speech made by the FCC's Chairman on Tuesday had to soothe some fears. In a nutshell, the FCC chairman said that his agency was going to attempt to keep an anti-regulatory stance concerning broadband Internet connections, and that stance may set a broadband national policy that strips local regulators from the type of power Portland tried to enforce on Ma Bell and Excite@Home. For the full text of the important speech, click here.

Excite@Home also made an interesting rebuttal to GTE (NYSE: GTE) and AOL's (NYSE: AOL) claim that Excite@Home and AOL can peacefully coexist on the same cable-access system. I thought the most interesting thought came when the company said, "Excite@Home is committed to continuing to provide an open access environment where consumers can access any Web content of their choice with a single click" (emphasis mine).

One thing for sure is that we are watching a battle royal unfold between Excite@Home, Ma Bell, AOL, and the scores of other telephone companies and ISPs out there. By owning both AOL and Excite@Home, chances are good at least one of our companies will be victorious.

Amazing Amazon

If there's one company that exemplifies what a Rule Breaker is, it has to be Amazon. The company breathes with confidence and is lightning fast to capitalize upon opportunities when it sees them. Here's a company that's breaking all the rules and turning the traditional retail (as well as e-tail) business on its head.

This week it was announced that Amazon had acquired over 50% of the pet-supply upstart pets.com. For those keeping track at home, this means that Amazon now has significant stakes in online companies that sell pet supplies, drugs, and groceries. I'm sure the pets.com deal is not the last from the folks in Seattle.

Amazon also announced this week that it had acquired a stake in Liquid Audio. For those who don't know, Liquid Audio is one of the leading ways to download music over the 'Net. Amazon has already become the premier seller of music CDs online, and reading the tealeaves I think it is a safe bet that Amazon wants to lead the charge in selling digital music over the Web, too.

I happened to order a CD from Amazon this week, and when it arrived there was a fairly slick little pamphlet inside advertising Amazon's auction site. eBay (Nasdaq: EBAY) may be the largest online garage sale at the moment, but Amazon is making large waves in the auction market. Just think, four months ago Amazon did not even have auctions, and now the company is as strong a contender as any in that market. Amazing.

I think the company's alignment with Sotheby's (NYSE: BID) this week added another strong card to Amazon's auction hand. The Sotheby's name adds awesome credibility to Amazon's auctions, and the deal was certainly one of the reasons Amazon recovered a bit this week. Make no mistake -- Amazon is positioning itself to not just be the world's largest bookstore. Amazon is aiming to become the world's largest store of any kind.

I give a good belly laugh when I see folks still trying to compare Amazon to Borders (NYSE: BGP) or Barnes & Noble (NYSE: BKS). I think a comparison to Wal-Mart (NYSE: WMT) might be more accurate, but even that falls short of the mark. Amazon is without equal. Books, music, videos, drugs, groceries, pet supplies... the list just keeps on growing, and I guarantee it will continue to grow in a big way.

The company announced three deals (pets.com, Sotheby's, Liquid Audio) just this week, and I've got to wonder what will be announced next week. (Any guesses? Swing by the Rule Breaker message board!)

Have a Foolish weekend. And to all the Dad's out there (Hi Dad!), Happy Father's Day!

-Paul Larson

06/18/99 Close

Stock  Change    Bid 
AMGN  -2 3/8     53.06
AMZN  -1 5/8    111.31
AOL   +1 7/8    112.50
ATHM  +1 1/8     52.44
CAT   +2 5/8     61.50
CHV   -  1/2     93.19
DD    +  1/8     71.38
DJT   -  1/8      4.69
EBAY  -  9/16   146.19
GT    -1 13/16   58.44
IOM   -  9/16     3.81
SBUX  -  3/16    36.94
TDFX  -  7/16    15.25

                  Day     Month  Year   History   Annualized 
      R-BREAKER  +0.07%  -7.28%  24.09%  1145.48%  67.89%
        S&P:     +0.22%   3.16%   9.83%  207.23%   25.93%
        NASDAQ:  +0.76%   3.76%  16.91%  255.94%   29.80%

    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    112.50   12278.28%
   9/9/97  1320 Amazon.com     6.58    111.31    1591.87%
  5/17/95  1960 Iomega Cor     1.28      3.81     197.76%
  12/4/98   900 Excite@Hom    28.04     52.44      87.01%
  2/26/99   300 eBay         100.53    146.19      45.42%
  4/30/97 -1170*Trump*         8.47      4.69      44.65%
   7/2/98   470 Starbucks     27.95     36.94      32.13%
  2/23/99   300 Caterpilla    46.96     61.50      30.95%
 12/16/98   580 Amgen         42.88     53.06      23.76%
  2/20/98   260 DuPont        58.84     71.38      21.30%
  2/23/99   290 Goodyear T    48.72     58.44      19.96%
  2/23/99   180 Chevron       79.17     93.19      17.71%
   1/8/98   425 3Dfx          25.67     15.25     -40.59%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 247500.00  $245500.53
   9/9/97  1320 Amazon.com  8684.60 146932.50  $138247.90
  12/4/98   900 Excite@Hom 25236.13  47193.75   $21957.62
  2/26/99   300 eBay       30158.00  43856.25   $13698.25
 12/16/98   580 Amgen      24867.50  30776.25    $5908.75
  5/17/95  1960 Iomega Cor  2509.60   7472.50    $4962.90
  4/30/97 -1170*Trump*     -9908.50  -5484.38    $4424.13
  2/23/99   300 Caterpilla 14089.25  18450.00    $4360.75
   7/2/98   470 Starbucks  13138.63  17360.63    $4222.00
  2/20/98   260 DuPont     15299.43  18557.50    $3258.07
  2/23/99   290 Goodyear T 14127.38  16946.88    $2819.50
  2/23/99   180 Chevron    14250.50  16773.75    $2523.25
   1/8/98   425 3Dfx       10908.63   6481.25   -$4427.38

                              CASH   $9924.87
                             TOTAL $622741.75
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.


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