October 18, 2000
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Re: What's up?
What IS the problem? [with @Home]
The problem is many fold. Here is a quite incomplete list:
The company has had a history of disappointing investors, by changing strategy, by management turnover, by altering profitability predictions, by a confused ownership structure, and by a lot more things, many of which have contributed to a slow, agonizing decline in the stock, which few people want to own until it shows some strength. And it hasn't. That is the unvirtuous cycle, where weakness begets selling, which begets weakness, which begets selling, etc.
The market is shaky. It's October, and it's natural. This October, however, we're seeing significant earnings weaknesses on the part of some of the most influential tech leaders. That begets selling, which begets weakness, which...
For example, in the Telecom sector, the big guys: AT&T, WorldCom, Sprint, etc. have all announced lower than expected profits. The sector has become "over-competitive", with the only differentiating factor being "the price of the product" With poor profits, investors are guessing that they will ratchet down capital investment, which people are guessing (and in some cases demonstrating) will lead to lower profits for the likes of Lucent and other equipment manufacturers. The "retail" weakness forebodes trouble for telecom suppliers, and that perception begets selling, which begets weakness, which...
Higher interest rates, which were supposed to bring us to a "soft landing", became coupled with skyrocketing energy prices. More dollars in the gas tank means fewer dollars for "stuff" at Wal-Mart and Home Depot, which investors think will lead to lower retailer profits, which begets selling, which begets weakness. which...
Higher interest rates also affect corporations which need to finance large capital and expansion plans, meaning more money to the banks which leaves less money to the companies, which means smaller capital budgets and smaller expansion plans, which means slower growth, which begets selling, which begets weakness, which...
The declaration that "the PC era is over" has tumbled the prospects for stalwarts like Dell and Microsoft, and even if the chant is untrue in the long term, it negatively affects the stock prices of those companies and others in their sectors and "tech" in general, which begets selling, which begets weakness, which...
For the most part, the "front end" of the internet is passe�. AOL is mired in its regulatory obstacle course, Earthlink is viewed as a short term business, MSN isn't going anywhere, most of the other dot-coms are unprofitable and sinking, and unfortunately, in the investment world, you are known by the company you keep. For the most part, owners of ATHM have been burned and obviously aren't bulking up, doubling down, or yammering to buy buy buy.
Even Yahoo! says "advertising" is problematic, and that's their entire business! If Yahoo! is having trouble, it's a short leap to think that Excite might have some sales problems, too.
It will take a mighty shove from some industry stalwarts, some help from the Fed, and some meaningful announcements from a lot of major bellwethers, not to mention significant accomplishments from this company to get things back on track.
None of this means that companies like Dell, Microsoft, AOL, Yahoo!, Home Depot, Wal-Mart, et. al. won't continue to "grow", they just might not grow as much as people thought they were going to when they bid the share prices up as high as they did. That begets weakness, which...
And that's "what's wrong".
It also wouldn't hurt to get "October" over with.
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