September 1999 Contents
Summer Doldrums Setting In At Long Last The summer that came in with a roar is exiting with a sigh. Despite the record number of sizzling initial public offerings that emerged this season, the doldrums are finally setting in as investors and companies alike take a closer look at this year's top stock performers. Just one company that debuted since June 25 - Red Hat Inc., a Linux software distributor- is among the year's 10 best performers. Ranked seventh with a 409% gain over its $14 offering price, it is the only company of the 63 that debuted since early summer to make it to the top 10. Redback Networks Inc. is the year's top performer as the market enters its summer slowdown, posting an 835% rise in its May 17th $23 offering price. Second is Brocade Communication Systems Inc., which rose 831% over its May 24th $19 offering price. Third is Phone.com Inc., a telecommunications software company, which rose 515% from its June 10th $16 offering. Phone.com Inc. is one of the Internet infrastructure companies that are heating up the cold summer market, holding their ground through recent sell-offs in most other technology stocks When 1-800-Flowers.com Inc. and three other Internet stocks all closed below their offering prices on Aug. 3, the market finally slowed down to take a breath. Since then, many companies have reduced the magnitude of their IPOs or postponed them altogether. Only two new stocks are expected to price this week: DuraSwitch Industries Inc., an Ariz.-based maker of electrical switches and control panels, and PurchasePro.com Inc., a Las Vegas-based business-to-business electronic commerce company. The former is expected to price at $8-$9 per share, the latter at $11-$13 per share. These two are brave in the face of this summer's daunting statistics. Out of the 330 IPOs that debuted this year, a little over a third, or 113, currently trade below their offering prices, according to Thomson Financial Securities Data. Almost all of the early high-fliers are at the bottom of the pack. Only VerticalNet Inc. and Healtheon Corp. are holdovers from the top 10 performers at the first quarter's end. The degree to which older performers have been cast off in favor of new additions is striking. Marketwatch.com and iVillage Inc. are not even in the top 35. But the pure-play Internet IPOs are still expected to return to favor through year end, welcome news for those who delayed their offerings, such as Tunes.com Inc. and Bamboo.com Inc. Bergen Brunswig Enters Alliance With More.com As the online drugstore arena becomes a heated battlefield, companies are forming new alliances to gain a leg up on the competition, as evidenced by more.com's newly announced alliance with distributor Bergen Brunswig Corp. As the nation's No. 2 drug wholesaler behind McKesson HBOC Inc., Bergen will handle shipments of more.com's expanding Internet orders. More.com company officials say that customers will also be able to pick up prescriptions at 2,000 pharmacies nationwide that are affiliated with the prestigious wholesaler. Despite more.com's expansion oriented mindset, the Internet is not a surefire avenue of business for this company. The San Francisco-based more.com just launched its Internet drugstore site last week and is popularizing it through advertisements. Since early last year, the company has operated a site offering dietary supplements and it was recently folded into more.com. As of now, the site offers 20,000 nonprescription drugstore items and plans to offer far more in the long run. By year end, more.com's goal is to begin selling prescription drugs, which would also be shipped by Bergen. Good Neighbor Pharmacy, an alliance of 2,000 independent stores operating under that name and buying products through Bergen, will be responsible for handling pick-up orders by more.com's customers. But both traditional concerns and purely Web companies are challenging more.com in the race to become the leader in the crowded field of Internet drugstores. One major obstacle plagues both: the need to sign up customers covered by health insurance. Drug reimbursements for the bulk of those customers are controlled by pharmacy-benefit managers, which want the Internet business for themselves. Benefit managers are launching their own Internet drugstore sites, such as Express Scripts Inc.'s yourPharmacy.com. Although more.com plans to leverage Bergen's and Good Neighbor Pharmacy's relations with managed-care providers to attract insured customers, it does not have any agreements with large benefit managers. Bergen must have realized that there are flaws in more.com's business strategy because the wholesaler will supply products and services to other Internet sites as well. Silicon Alley Shares Post Gains on Eve of FOMC Meeting Amid expectations that the Federal Reserve will not raise interest rates beyond the quarter percentage point expected at August 24's Federal Open Market Committee meeting, a robust rally led by Internet stocks lifted technology shares on August 23 with chip and software issues joining in the market's upward trend. Analysts report that investors tend to be looking beyond the Aug. 24th meeting and seeing lower interest rates in the skies ahead, a prediction strongly benefiting the technology sector. Tech stocks, particularly Internet stocks, can be extremely rate sensitive since those companies borrow heavily to fund growth and expansion. The Goldman Sachs Internet Index rose 4%. The Amex Internet Index gained 2.6%. Fueling these gains, Amazon.com shares rose 6 9/16 to 120 9/16; EBay gained 4 3/4 to 127 æ; Yahoo jumped 6 3/8 to 151 ‡. After analysts at Banc Boston Robertson Stephens made positive comments regarding ExciteAtHome's stock, predicting that shares would reach as much as $100, they actually did rise 1 5/16 to 39. America Online also jumped 2 æ to 98. Although a news report over the weekend speculated on the company's prospects for television interests in Germany, a spokesman for AOL confirmed that the Internet leader is not making any new TV initiatives. As the Nasdaq 100 and the Morgan Stanley High Technology Indexrose, shares of Forte Software jumped 3 æ to 20 7/8 after Sun Microsystems agreed to acquire the software company for $540 million in stock. Sun's stock lost ground, falling 7/8 to 73 3/8, which dimmed the Goldman Sachs Computer Hardware Index. Nonetheless, shares of chip titan Intel rose 2 5/16 to 82 º, extending its run in record territory after reaching a new high on Aug. 20. Microsoft's shares rose 2 1/16 to 85 7/16 on heavy volume. Network software company Novell and database maker Oracle also posted gains in their stock prices. Lucent Technologies, Nokia and 3Com announced that they are working to create a new industry group that will adopt standards for wireless computer networks and certify products that meet those standards. With this news, Lucent and 3Com shares gained 2% and 1.5%, respectively. SBC Throws Bundles of Competition at AT&T SBC Communications will launch "telephone service bundles" to compete with similar packages planned by rival AT&T Corp. SBC will offer discounted packages that include Internet, entertainment and local-telephone service to consumers in California and Texas, two markets targeted by AT&T for its bundled offerings. The "battle of the bundles" characterizes a local-telephone market besieged by competition. In Fremont, Calif., AT&T has already begun selling local and long-distance service via cable-TV lines acquired through its purchase of Tele-Communications Inc. In a countermove, SBC's, Pacific Bell unit is offering comparable bundled services-including DirecTV satellite-TV service through a relationship with General Motors Corp.'s Hughes Electronics - for 6% to 35% less than customers would pay if they purchased the services a la carte. Bundles that mix and match offerings such as wireless and high-speed Internet with local-phone service are offered to consumers. They can even add features to their bundle, such as digital-subscriber-line service, which is the Bell companies' version of high-speed Internet access. AT&T has also earmarked Dallas as one of the first testing areas for local phone service via cable lines. With such close competition, customers will realize that SBC's packages lack long-distance calling. SBC and the other Bells are prohibited from offering long-distance services in their home territories until they prove that they have opened up their local-phone networks to rivals. None have done so. SBC is waiting for Texas regulators to endorse a plan to offer long-distance services in the state. Long awaited attempts to offer "one stop shopping" for communications and entertainment are soon to come. AT&T is spending $120 billion on cable-TV acquisitions to provide customers with local, long-distance, Internet and TV services. Bell South Corp. has launched bundles featuring local-phone, Internet, cellular and paging offerings. SBC will offer its bundles in additional cities throughout the Southwestern and Pacific Bell territories in September and October. Its "Home Phone" bundle, with local service and Caller ID, will be available immediately in major markets. PSINet May Acquire Transaction Network Services Internet service provider PSINet has reached an agreement to acquire Transaction Network Services Inc. for $45.28 a share in cash and stock, or $705 million, in a move that may give PSINet a foothold in the expanding electronic commerce arena. Each share of Transaction will be converted into .50 of a share of PSINet plus $22.50 in cash. The deal may be completed prior to the year's end so that PSINet can take advantage of the holiday-shopping season. PSINet is strengthening its role as a global Internet service provider for businesses, offering a full bundle of services to customers. Much of Transaction's revenue arises from providing network services at the point of sale, including credit and calling card transactions and it is becoming an important player in providing authorization services for Internet transactions, handling 8 million e-commerce purchases. With the acquisition, PSINet will gain technology for speeding transactions via the Internet and a ready base of retailers who might shift their operations onto the Internet, underscoring the desire of many Internet companies to offer a complement of e-commerce services. Although PSINet was a pioneer in offering Internet access, it has not enjoyed the success of competitors such as UUNet, a unit of MCIWorldCom Inc. In 1995, PSINet acquired Pipeline to penetrate the consumer business. In a startling turnabout, it sold Pipeline and related assets to MindSpring Enterprises Inc. in 1996 and has since focused on its core business customers. But PSINet has successfully expanded overseas, acquiring several smaller Internet-service providers in Latin America and Europe and expanding into the 20 largest telecommunications markets. The proposed deal will allow PSINet to introduce Transaction's services to international markets. For the first six months of this year, PSINet reported a net loss of $121.3 million, or $2.10 a diluted share, on revenue of $228.7 million. For the same period, Transaction reported net income of $4.2 million, or 30 cents a share, on $80.8 million in revenue. The proposed deal is expected to add to PSINet's earnings. Japanese Business in the United States
| |
| Contact Information: Morgen, Evan & Company, Inc. Copyright 1999 |