TCS Daily

DoubleClick, eBay And Their Promising Ilk

By James K. Glassman - January 22, 2001 12:00 AM

Two pieces of news:

First, a Reuters/Zogby poll finds that one in four Americans think they will be poorer in the next four years. That sounds like a stock-market "buy" signal to me.

Second, and more interesting, USA Today just published President George W. Bush's investment portfolio - managed in a blind trust since 1995 (when he was elected governor of Texas) by Northern Trust. He has half his assets stashed in U.S. Treasury notes and somewhere between one-eighth and one-sixth in stocks and stock mutual funds. The rest is in real estate, cash and private partnerships. Bush's total net worth is somewhere between $11 million and $29 million (reporting requirements account for the vagueness).

What intrigue me are the stock holdings. Northern Trust has put Bush into 39 stocks, but just seven of them are technology and telecom firms, and all of those are large ones.

There's no telling, of course, whether Bush continues to hold these stocks in his blind trust, but, if he does, all of them seem to have benefited from his accession to the presidency.

Since the start of the year, Microsoft has jumped 41 percent; IBM, 31 percent; Lucent, 54 percent; AT&T, 32 percent; Intel, 8 percent; Xerox, 48 percent; and Compaq Computer, 38 percent.

Let's hope Northern Trust did not lose faith in technology, like so many nay-saying pundits in the financial press. The shakeout of the past year has, on the whole, been healthy. It is not beneficial for an economy to have capital directed blithely to firms with little chance of making money. Now, many of those companies are being acquired or going bankrupt. The firms that are left will be stronger.

Lately, I have been drawn to two types of tech firms: the large ones, like those in Bush's portfolio, and smaller, riskier companies that are either making profits or are on the verge - robust businesses whose stocks have been dragged down indiscriminately.

One example in the b-to-b sector is Commerce One, whose software helps companies buy and sell. The stock went public in July 1999 at $3.50 and peaked at $137 in March last year, then collapsed. After surging last week on news of strong sales, it's at $28. Another is Siebel Systems, Inc. (which I own), a maker of Internet-based software, which, among other things, supports corporate sales forces. Siebel, too, has fallen from its high, but not nearly as much. The company has been profitable for years, and, over the past 12 months, earned $200 million on $1.5 billion in revenues (profits were up 65 percent over the previous year).

But it is the b-to-c sector that has been most neglected. At these prices, I am a fan of Amazon, down 80 percent from its high and consolidated its position at the top e-retailer as competitors throw in the towel, and Yahoo!, which has emerged as the dominant worldwide portal and whose stock I have been buying lately. Amazon still loses money while Yahoo makes a decent profit - though its P/E remains astronomical.

Even more interesting, however, are two superb b-to-c firms whose stocks have been clobbered: DoubleClick, which provides media and marketing services to firms that advertise on the Web, and eBay, the online auctioneer.

DoubleClick, which is well stocked with cash, still has not made a profit and is suffering from the Internet advertising debacle - but, again, it is a company that will benefit from the demise of competitors. Its stock fell from a high of $135 to below $10 at the start of the year. In recent weeks, it's rallied to $15 - still, to my mind, cheap for long-term investors who can tolerate the risk. EBay, which peaked at $127 in March and fell to $26.50 in December, has also surged, nearly doubling. EBay has been profitable since 1997; revenues have been doubling annually, earnings tripling.

The problem for both DoubleClick and eBay is political. Government intervention to assuage privacy concerns would hurt these companies. Let's hope that President Bush, just inaugurated Saturday, will allow consumers to make their own choices and allow firms like these to thrive. If not, perhaps consumers will be poorer a year from now.


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