TCS Daily


Buying opportunities in e-commerce?

By James K. Glassman - March 27, 2000 12:00 AM

For most of the last year, tech investors have been chasing opportunities in the "business-to-business space" of e-commerce, or "b2b" in the buzzword of the moment. Any companies that create software for selling industrial products online, automate corporate purchasing, or host cyber-auctions of machine tools have seen their stocks explode. The b2b fad has made consumer-oriented websites, or "b2c" companies, look downright old-fashioned in comparison.

In fact, many stocks that came to symbolize the exploding wealth of the Internet era have been delivering flat or negative returns of late. Yahoo (YHOO) is trading more than 20% below its high for the year, AOL (AOL) is down roughly 25% and amazon.com (AMZN) has fallen more than 30% from its peak. Are these great consumer e-commerce stocks ready to lead the market once again?

I think these b2c companies may return to prominence. I like them because they all focus on delivering a great customer experience and they lead their categories. For those of you concerned about stratospheric P/E ratios or even large losses in amazon's case, you might also take a look at Microsoft. All the Justice Department wants to talk about is Windows, but MSFT has also built a large consumer following for its range of b2c websites, including msn.com and Carpoint.

I like to buy stock in great companies, no matter what their current prices, because I plan to hold them for a long time. So I'm interested in consumer e-commerce companies with real upside potential.

This does NOT mean that I see a rally coming for b2c companies in general. Many publicly-traded consumer websites have no business being public companies. With anemic revenues, large losses and niche markets, many of them will face serious challenges in the next twelve months. Not that the last twelve months have been all that swell for investors. People who bought stock in the weaker b2c players have been punished severely, and they would be wise to prepare for another beating.

One of the biggest stinkers in b2c has been TheStreet.com (TSCM). After hitting a high of $71.25 last year, the stock has tumbled to a recent $12.25. It's difficult to see how this company will ever generate substantial profits. Ditto for Salon.com (SALN). Even after losing two thirds of its value since last July, Salon's current valuation of $57 million is ludicrous for what is essentially a minor journal of opinion. TheGlobe.com (TGLO) has also had a lot of explaining to do to disappointed investors, and further disappointments may lie ahead.
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