Re: only 3% of US market cap is pure-play Internets

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From: Adam Rifkin -4K (
Date: Mon May 01 2000 - 20:49:17 PDT

Roy wrote:
> Banking is transport of goods, in my opinion. Fees are paid,
> responsibility is transferred, etc. As Adam mentioned, many of the
> post-IPO wonders are much better bankers than they are businesses.

Silicon Valley Bank specializes in aggressive investment opportunities
for "extra cash" sitting in a startup's bank account. Wherever there is
an itch, there's someone out there to whom to outsource the scratching.

In addition, companies like CMGi have the ability to float bonds to
"invest" in small companies at the ground floor (a $5 million investment
of theirs in GeoCities returned $1 billion in YHOO shares four years
later, much of which they have now cashed in to do-it-again) and/or
"IPO" themselves on other exchanges (Lycos Europe, AOL Latin America,
and Yahoo Japan are all recent stock spinoffs, I kid you not).

> What I find bizarre is how easy it has become for public companies
> to play shell games with their assets and iterate them as IPOs. I don't
> understand why most of the deals done by CMGI over the past year have
> been legal, let alone profitable.

I don't understand why most of the deals done by CMGi over the past year
resulted in the exodus of a lot of the smartest people at the top of the
companies CMGi acquired. And I don't understand why the market doesn't care.

Sort of reminds me of last week's spinoff of AT&T Wireless. AT&T buys
McCaw Cellular in 1994 for $11 billion, loses a bunch of top quality
management, and then spins it out as a "tracking stock" (whatever the
heck that is) six years later for -- you guessed it -- $11 billion.
Though I suppose that's better than 3Com buying U.S. Robotics in 1997
and then spinning out its Palm division in 2000, with the spinoff
getting a market cap higher than its parent:

> But I don't understand the stock market in general. My last grande pick
> was Inacom (ICO), a company which has managed to befuddle its way down
> to $1.25 per share and a market cap of $56 million even though they
> recently sold one of their smaller divisions for $300 million (cash).
> I suspect it has something to do with their failure (so far) to come
> up with an annual report for 1999. Or maybe this is the ultimate example
> of how bad the typical American stock owner is at basic math.

Bad at basic math, bad at basic logic, good at following the crowd, and
made senseless by the lure of the Sirens of easy money.

> So, judging from my past experience, now would be a good time to
> invest in pure plays, because they won't ever be profitable.

If you look at their business as selling stock rather than doing
whatever stupid thing it says on their 10-K they're doing, then these
businesses are wildly profitable. Amazonians have literally netted
hundreds of millions of dollars (beelyuns, perhaps?) selling stock to
the public.

It's a nice racket if you can get it.


McCaw is the telecom wonderboy who built the cellular telephone industry almost single-handedly in the 1980s after defying skeptics with the vision that cellular phones could be a common, mass-market item. He stitched together a wireless empire -- McCaw Cellular Communications -- and ultimately sold it to AT&T in 1994 for $11.5 billion. Like his current enterprises, it never made a cent in profit. McCaw then turned his attention to his "Next" company strategy. In 1994, he founded Nextlink as an unregulated competitor to the Bells. In 1995, he bought a controlling $1.1 billion stake in Nextel and began refashioning it from a dispatch service used by truckers to a new-age digital wireless service for businesses of all kinds. In 1990, he founded Teledesic, the most risky and long range of his companies. Prospects for Teledesic haven't been as rosy as for its siblings. In fact, this week, McCaw's organization said it might alter its current satellite communications plan. Teledesic still is trying to raise $6.5 billion of the $9 billion it estimates it will cost to build and launch its global satellite system. It has deep-pocketed backers -- Saudi Prince Alwaleed Bin Talal, Boeing, Motorola, and Bill Gates, chairman of Microsoft. But the nascent satellite communications industry is fraught with risk and cost overruns. --

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