track higher early Wednesday
Wireless, interactive TV turn heads Critical
Path, Tivo, AOL, Art Technology Group buck trend
By Bambi Francisco,
CBS.MarketWatch
Last Update: 5:07 PM ET Jun 14, 2000
SAN FRANCISCO (CBS.MW) – Net stocks ended lower Wednesday, but optimism about the
future of wireless e-mail and interactive TV sent shares of Critical Path and Tivo solidly
higher.
Most Net stocks, however, followed the broader Nasdaq market lower. The Goldman
Internet Index gave up 2.2 percent. The Nasdaq Composite lost 53 to 3,797.
Shares of Critical Path (CPTH) rose 1 5/16, or 3 percent, to 46 3/4. The
e-mail outsourcer extended its partnership with Aether Systems (AETH) to collaborate on
next-generation technologies that marry messaging and mobile devices. The jointly
developed applications could be deployed as early as the third quarter, said Critical Path
CEO Doug Hickey in an interview with CBS MarketWatch.com.
Hickey hopes the new applications will enable the company to penetrate the enterprise
market. He also expects that half the corporations will prefer to outsource wireless
e-mail solutions. See
full story.
Shares of Aether Systems rose 13/16 to 181 13/16.
Software.com (SWCM), which competes with Critical Path, reversed course by midday.
After slipping early on, shares rose 1 to 92.
America Online (AOL) rose 1 to 52 5/8. Tivo (TIVO) soared 12 15/64, or 57
percent, to 33 51/64 on news the personal video recorder technology provider entered a new
three-year strategic agreement with America Online. Under the terms of the deal, AOL will
invest up to $200 million in TiVo and receive warrants to buy more TiVo shares. AOLTV will
incorporate TiVo’s PVR technology into a set-top box that is targeted for delivery in
early 2001.
Too exposed
CMGI (CMGI) traded as high as 61 in the early going, but turned lower as market
sentiment deteriorated.
"CMGI tends to trade as a proxy for the Internet sector and the IPO market,"
said Henry Blodget, an analyst at Merrill Lynch in a recent note. "Bottom line, CMGI
is long the Internet. As long as the public market for Internet stocks does well, CMGI
probably will, too."
Shares of CMGI fell 5/8 to 56 despite reporting better-than-expected quarterly results.
After the close Tuesday, the operator of Internet companies reported a
narrower-than-expected third-quarter loss of $428 million, or $1.53 per share, and revenue
of $225.9 million, a nearly 50-percent increase over the second quarter. The net loss
includes the effects of amortization of intangible assets and stock-based compensation
charges.
The company exceeded earnings estimates due to the sale of shares in Yahoo (YHOO)
and Amazon.com (AMZN). Additionally, CMGI also recognized $20 million for its stake in
Vicinity (VCNT), one of its portfolio companies that just went public on February 9 at
$17 a share. Shares of Vicinity traded at 22 in recent market activity.
Following CMGI’s report, Peggy Ledvina, an analyst at Dain Rauscher Wessels,
raised her price target to $88, based on her projections of the company’s Net Asset
Value.
Rising expectations
Art Technology Group (ARTG) shot up 5 5/16 to 74 13/16. CS First Boston analyst
Brent Thill said that Art’s Customer Lifecycle Management solution is on track to
sell like hotcakes. Based on conversations with a number of attendees at Art’s user
conference in Palm Springs, “we believe the partner channel will do cartwheels to get
their hands on this type of solution,” he said.
Shares of optical equipment/component companies were mixed after scoring big wins at
the start of the week. Interest in these shares reflect the need for more bandwidth to
support the explosion of Internet traffic.
“Investors are excited about this space,” said Rob McCormack, an analyst at
Integral Capital Partners. “The mood swing is euphoric right now, and if the world
(market) stays stable, this sector will outperform.”
The stocks McCormack follows include JDS Uniphase (JDSU), SDL (SDLI), and ONI
Systems (ONIS).
The group has had a terrific run of late, sending multiples close to 50 times 2001
sales, noted McCormack. To pay these prices, “you have to believe that demand remains
strong,” he added.
“But at some point the bar gets so high that you can’t go over.”
McCormack is apprehensive about jumping in at these levels, especially because
“manufacturing processes,” have not reached a level of maturity that eliminates
execution risk.
But if he were to choose, SDL has the most upside potential because of its undersea or
submarine applications, he said, admitting that it’s “very expensive.”
Moreover, SDL recently acquired a more profitable company that increased SDL’s
sales by 20 percent, he said. “It got better bang for the buck.” That said,
McCormack is looking for opportunities to pay a discount to a company’s growth rate.
As for his picks of upcoming initial public offerings that fall into his sector of
coverage, McCormack is eyeing Accelerated Networks (ACCL), which offers a multi-service
integrated access platform. “People want to have one network for voice, video and
data,” said McCormack. “There are many companies that offer this, but
Accelerated is in the market at the right time with a pretty good product, and I think
it’ll win a lot of business.”
CS First Boston is expected to price shares of Accelerated on June 22. But whether
there is ample demand remains to be seen.
The 4-million share IPO offering was revised lower on June 1, from between $13 and $15
a share, down to $9 to $11.
The consequence of high expectations
Shares of NBC Internet (NBCI) gave up 1/2 to 17 1/8, after plunging 28 percent on
Tuesday. After the close Monday, the Internet media and e-commerce company said revenue
and earnings for the second quarter will be lower than Wall Street expected due to a
shortfall in ad-sales and anticipated costs associated with its new branding and company
restructuring effort.
Roughly 90 percent of NBCi’s advertising clients are dot-coms, said NBCi Chief
Executive Will Lansing, on a conference call Tuesday morning. Lansing also cautioned that
ad softness from dot-com clients will hurt second quarter and could extend into the third
quarter. Moreover, the company doesn’t expect to be profitable until 2002, two quarters
behind analysts’ forecasts.
"There’s a handful that are going near belly-up that simply are unable to
pay," Lansing said.
See Net stocks,
Tuesday.
Bambi Francisco is Internet editor of CBS.MarketWatch.com.