Tale of the Tape

Try Jim Cramer's Action Alerts PLUS
CLICK HERE NOW

Dot-Bombers in Stealth Rally

12/19/01 - 09:05 AM EST

Diane Hess

To the chagrin of dot-com doomsayers, a handful of Internet stocks are on track to finish 2001 with big gains.

priceline.com PCLN is up 324%, while travel site Expedia EXPE is up about 300% and Travelocity.com TVLY is up 127%. eBay EBAY has risen 110%, Drugstore.com DSCM has gained 96%, and mortgage lender NetBank NTBK has tacked on 56%.

What these stocks have in common is consumer relevance -- never before has it been so easy to purchase a mortgage or buy airline tickets. But more importantly, each of them, with the notable exception of Drugstore.com, is making money.

"The success of Internet companies lies not only in selling people what they want, which a lot of e-businesses do," said John Underwood, a research analyst at Legg Mason, "but also in selling it to them profitably."

Clicking

The extent to which the Internet itself adds value is the key factor in determining their viability, analysts say. "Selling travel is more efficient online than it is offline," Underwood said. "Consumers feel they have more alternatives in searching for airfares themselves than they do when relying on a travel agent."

Other experts agree: "With regard to travel, the online channel did something the offline channel never did," said Jake Fuller, an analyst at Thomas Weisel Partners, "it made pricing clear to the consumer."

In the third quarter, priceline reported pro forma earnings of 3 cents a share, on revenue of $302 million. But with charges, it had a loss of two cents. The company is forecast to break even in the fourth quarter.

Among priceline.com's competitive advantages are low costs -- it doesn't need a warehouse to peddle its services. "Many companies that sell online have to compete with bricks-and-mortar warehouses," said Underwood. In his view, the ones that don't have to deal with stockrooms, such as Ticketmaster.com and eBay, are better off.

So Young

The biggest hurdle for priceline is its ability to grow, said Fuller. The company, with its demand-based business model, "faces competition from more full service travel providers," he said. Perhaps to address that issue, priceline.com announced a marketing deal on Monday, after the closing bell, with AOL Time Warner AOL.

The terms of the deal were not disclosed, but priceline's travel products will be available and promoted throughout AOL's travel channel and travel-related sites across CompuServe, Netscape, and Mapquest. Wall Street applauded the deal. priceline rose 10% to $6.26, though AOL fell 2.4% to $32.75.

"This is a good deal for priceline, which is already strong in distribution," said Underwood. "But I don't think it will materially alter earnings or revenue numbers for next year." In the past, Priceline has been unwilling to plunk down cash for distribution deals, leading Underwood to believe it put up a reasonable amount of money this time.

Dear Pharmacist

In other news, online drug retailer Drugstore.com DSCM reaffirmed on Tuesday its fourth-quarter revenue forecast of $40 million to $41 million, based on record numbers of visitors and sales. The company said average sales for the last three weeks were more than 30% higher when compared to sales for the same three-week period in 2000.

Drugstore.com rose 32% to $1.78 on Tuesday, though the company still needs to show it will make money.

Online lenders such as Netbank NTBK have also witnessed a burst of activity, with a steep drop in interest rates this year. Netbank reported earnings of seven cents per share in the third quarter.

Each of these stocks trades at high valuations. Using 2002 earnings, Travelocity.com has a P/E of 48.2, priceline.com has a P/E of 56.9, Expedia has a P/E of 55.8, Netbank has a P/E of 21.5, and eBay had a P/E of 89.1. But while these companies might be not cheap, they haven't been the dogs many pundits have portrayed them as -- at least not this year.




As originally published, this story contained an error. Please see Corrections and Clarifications.


Tale of the Tape



05/19/08
Cramer on Top Searched Stocks: Yahoo!

Yahoo! is among the most searched stocks on TheStreet.com. Here's what Cramer had to say about the stock recently.


05/17/08
Jim Cramer's Best Blogs

Catch up on his thinking on the hottest topics of the past week.


04/26/08
Coming Week: Make or Break

Investors will have to deal with a Fed meeting and another flood of earnings and economic data.


05/19/08
Top Rocket Stocks: Ensco

Ensco International and Echelon have the potential to move higher in coming days.


04/28/08
Monday's Analysts' Upgrades, Downgrades

See who made what calls.


05/19/08
Telecom Giants See a Savior in Video

The addition of video is helping telecom companies compete against cable and satellite companies.


05/19/08
Contract Expiration Tempers Oil's Rise

The June West Texas Intermediate contract reflects selling pressure ahead of Tuesday's expiration. But stocks in the sector are generally trading higher.


05/19/08
Analysts' Upgrades, Downgrades: Amazon

See who made what calls.


Your Recent Quotes: Quote Up0 | Quote Down0
Dow S&P 500 NASDAQ
Oil*
Gold
10 Yr
0.00%
%
%
%
Data delayed 20 min
Sign up for our FREE newsletters now.

Keep on top of the market and the critical information you need to make more profitable investing decisions.

  • Cramer's Daily Booyah!
  • Before the Bell

Privacy Policy

See All Free Newsletters

Premium Stock Ideas
Access Action Alerts Plus to find out Cramer’s latest picks now!