As a shareholder of each of the companies in this portfolio, I am at once a fan and a critic. Each of us must play both of these roles as investors. Never too much the fan, of course, since that can blind you to a company's weaknesses, as Alec Guiness was blinded to the madness of building his Bridge on the River Kwai. But also never too much the critic -- because if in fact you are far more critical than adulatory in your commentary or analysis of your stock... why the heck do you hold it?!
Thus, I think we do best to follow those wonderful words etched on Robert Frost's gravestone: "I had a lover's quarrel with the world." Frost advocates with characteristic brevity that necessary balance between being a fan and a critic. His subject was life; ours is investing.
I have a lover's quarrel with each of the companies I'm invested in.
So let me share with you, with Frostian conciseness (it is to be hoped), my quarrel with each of our eight companies. I am going to list the companies in order of how much money they've made us, least to most:
Excite@Home (Nasdaq: ATHM) (lost us $19K): Get those self-installation kits out into the stores and get your story out, as well. Where once we had multiplied our money in this investment, today we sit saddled with a 70% loss. Amazingly, Excite@Home has grown its revenues from $7 million in 1997 to $48 million in 1998 to $337 million in 1999 to $447 million in just the first three quarters of this year. Why the horrible stock? Try a company unable to keep up with its demand, working in an environment that is now cash-constrained. The fact is, Excite@Home has a profitable business model at the end of the rainbow. But we're perched precariously at the rainbow's apex, and all of a sudden the company could run out of cash during its net investment period (i.e., the time it overspends its means to deploy its network).
Thus, anything the company can do to get more subscribers (e.g., easy-to-use self-installation kits), the better. And we must find a CEO capable of selling Wall Street on the prospects. It would be an investor and consumer tragedy if the wonderful high-speed broadband service that Excite@Home delivers fails during nationwide deployment mode. (For a discussion of Excite@Home's recent troubles with Comcast, one of its cable partners, see today's news story from LouAnn Lofton.)
eBay (Nasdaq: EBAY) (lost us $9K): I have never had such high regard for a losing investment before. eBay was once a double for us; I believe it will be so again. The market has ripped to shreds "temporarily" most of the best consumer brands on the Internet, of which eBay is an obvious example. The most constructive criticism I can presently offer this company is to advertise in a more mainstream way what it is doing, and what I as a prospective buyer or seller can do via eBay. A legitimate question to ask of this business is, "Can it go totally mainstream?" Or will eBay's traditional auction business primarily involve a more niche group of collectors?
Its auction format is not as convenient for so many people who want to click something once and own it -- as opposed to having to come back to check ebay.com 17 times in the next four and a half days to see if they won. Anyway, with its growing profits, eBay should market itself as the "service that puts a price on everything," or some simple, pound-it-home branding campaign like: "Buy or sell. Anything." I'm not encountering mainstream marketing.
Human Genome Sciences (Nasdaq: HGSI) (lost us $6K): We're still too early into this investment for me to offer much quarrel for HGSI. I suppose I'll just say that I would like to see our CEO stay focused on performance. It's as me ol' writin' teachers used to tell me: Show, don't tell. Occasionally, Dr. Haseltine has been wont to talk a big game, which frankly is not what I look for or want to see from my CEO. I want my guy to play a big game.
Starbucks (Nasdaq: SBUX) (made us $8K): Our top criticism had been aligned with Wall Street's 1999 disenchantment with Starbucks: its flirtation with Internet acquisitions. With this now written off and the company refocused on its profitable, fabulously branded coffee business, I want to turn our attention next to operating margins. As a recent Wall Street Journal Online article makes clear, Starbucks' margin of operating profit declined back down below 15% of revenues for fiscal 2000. In a period of intense international growth, Starbucks must maintain or increase its margins, in order for the markets to perceive that growth as positive.
Celera (NYSE: CRA) (made us $9K): Celera, I'm sure I'm not telling you anything you don't already know, and I hope I'm not telling you something you're not already planning, but we have the cash and the positioning to become a biopharmaceutical research and development company, rather than just a database renter. I'm excited about the proteomics research we're focusing on now, too. But unless your degree of confidence exceeds 96% that being a data partner in genomics and proteomics to thousands of high-paying customers is going to work, let's please announce that we're going to use our own database to develop our own treatments as well, and do just that. Take your own advice on the main screen of your website (you can watch the brief Flash demonstration again at http://www.celera.com/), as it ends in 48-point font: "Discovery can't wait."
Amgen (Nasdaq: AMGN) (made us $52K): Show us a clear path toward the third wonder drug, that which can rightly take its place in the pantheon next to Epogen and Neupogen. If you don't have it, acquire it. You are flush with cash, and your cash holds up while numerous potential biotech acquisitions have watched their stocks get cut in half recently. Do we have our eyes out? Are we opportunistic? You ever talk to the Millennium Pharmaceutical (Nasdaq: MLNM) guys? Or, feel free to buy out Celera or Human Genome Sciences at a healthy premium!
Amazon.com (Nasdaq: AMZN) (made us $83K): Let's have more Toys 'R' Us (NYSE: TOY) deals, referring to that recent partnership with the mass-market bricks-and-mortar retailer that just couldn't get it done online last holiday season. Line up additional retail partners who have local presences where you can leverage their neighborhood positioning to super-serve your online customers with quicker deliveries and more direct customer service. You are the E-Commerce Olympian God right now. Gods have followers -- those who aren't as powerful who want to associate with them and benefit from them. Zeus benefited from the honor bestowed on him, as well as the mighty acts of heroism done in his name. Guys like Heracles built Zeus's friggin' brand. Find more guys like Heracles.
America Online (made us $234K): Put up a small box that features and mocks anyone who ever says the phrase "American Online" on national TV. Oops! I'm over my word count for today. Tomorrow's Rule Breaker report will focus on AOL, and offer some constructive criticism as well.
Stay tuned, and Frost on!
David Gardner
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