Publish date:

daily03-22-00's DAILY BULLETIN

March 23, 2000

Market Data as of Close, 3/22/00:

o Dow Jones Industrial Average: 10,866.70 down 40.64, -0.37%

o Nasdaq Composite Index: 4,864.75 up 153.07, 3.25%

o S&P 500: 1,500.64 up 6.77, 0.45%

o TSC Internet: 1,270.66 up 39.87, 3.24%

o Russell 2000: 571.19 up 18.40, 3.33%

o 30-Year Treasury: 103 30/32 up 4/32, yield 5.968%

Companies in Today's Bulletin:


3Com (COMS:Nasdaq)

Amazon (AMZN:Nasdaq)

CDNow (CDNW:Nasdaq)

America Online (AOL:NYSE)

Bank One (ONE:NYSE)

In Today's Bulletin:

o Retail: Profit-Hungry Amazon Moves to Cash In on a Rich Customer Base
o Wrong! Rear Echelon Revelations: Giving Palm the Back of the Hand
o Evening Update: Bye! Bye! Dale! Campbell Soup CEO Resigns
o Bond Focus: Slow Day in Treasuries Invites Speculation Community:

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Also on

The Buysider: Something Old, Something New...

Please, enough of this New Economy/Old Economy nonsense. We're all going to make use of the Net, and today's B2B plays will be all the poorer for it.

Mutual Funds: Same Song, New Verse: Hot Money Arrives Late for Biotech Party

Despite Wednesday's rally, it appears many latecomers are underwater on their biotech fund investments.

Market Roundup: Nasdaq Storms to Fifth-Biggest Point Gain as Rotation Rotates Again

The chip sector rocks and rolls, helping to fuel a big tech rally.

Banking: Wingspan Talk Deflates Net Banking Balloon

Bank One puts the unit on the block even as Internet banking continues to be seen as the wave of the future.

Retail: Profit-Hungry Amazon Moves to Cash In on a Rich Customer Base


Katherine Hobson

Staff Reporter

3/22/00 5:15 PM ET

The most valuable thing


(AMZN) - Get Report

sells may turn out to be its customers.

The company has famously expanded beyond books to CDs, software, toys and even home improvement products (cement, anyone?). But margins aren't exactly stellar on that stuff; in some cases, they're even lower than on books, as it's tough to make money selling commodity goods. Investors have noticed that profitability may be a ways off: Amazon shares are 36% off their 52-week high and now trade at 72, while other e-tailers, like



, are in

dire straits.

So, in addition to selling more stuff, why not pull an

America Online


and find some way to capitalize on its 17 million customers?

That's just what Amazon is doing, most obviously through deals with companies such as



, giving the newer companies play on Amazon's site (in the form of clickable "tabs") in exchange for cash and equity. That and other forms of customer monetization, to briefly lapse into analyst-speak, could generate revenue of just more than $1 billion in 2005, above and beyond retail revenue, estimated

Salomon Smith Barney

analyst Holly Becker in a recent research note justifying her 120 price target for the company. (She has since left the firm; before departing she rated Amazon shares a buy, and her firm has done recent underwriting for the company.)

Making hay by selling access to customers illustrates two key points about e-commerce. First, because it's hard to make money selling commodity items, more and more companies are going to look to alternate streams of revenue. Second, because no one has really figured out this Internet thing, the business models of even the biggest, most-established online companies are constantly changing. Companies known for selling one thing soon may be making money from something entirely different. (Witness the lemminglike rush to get into the B2B business, now that it's a hot sector.)

More Deals

The most obvious way for Amazon to jump into this is with more deals such as the ones it's recently struck with These are pure real estate deals, based on running the tabs during a set time period rather than on a strict cut of sales generated from click-throughs, says Ken Cassar, analyst with

Jupiter Communications

. is paying Amazon $105 million over three years for its placement, while is paying the company $145 million over five years. Amazon hasn't disclosed whether it also will get a cut of each transaction generated by the tabs. (The company wasn't immediately available for comment.)

In addition to its real estate deals, Amazon also could start to accept outright ads on its site, wrote Becker. In fact, she estimates that because of the good demographics of its customers, Amazon could command top rates for its ads. By 2005, the company could generate $302 million in ad revenue. That, combined with revenue from the partnerships, package inserts, advertising on invoices, email-list rentals, aggregate data rental and auctions, add up to the $1 billion.

And the margins are much better than on books or CDs; earnings before interest and taxes could total $817 million, she wrote. Becker hypothesizes that in 2005, this kind of stuff will account for about 7% of revenue, but a whopping 47% of earnings before interest and taxes. "This illustrates both the opportunity and the risk -- as, without meaningful benefits from customer traffic, Amazon's valuation potential will be limited," she wrote. That's important. If you believe Amazon is worth $120, you'd better be convinced it can pull this off.

Pulling It Off

Henry Blodget, analyst at

Merrill Lynch

, agrees this line of business is important for Amazon. "It's a win-win," he says. "Amazon is much more valuable to you if you can find other products on their site, and you're much more valuable to them." He's not so sure about the ads, though. "They don't need to," he says. "They get too much money for integrated promotions."

While Blodget predicts Amazon's retail business will be profitable on its own in 2002, that business will have a razor-thin margin of between 1% and 4%. Layering partnerships and other deals on top of that will bring margins up to between 8% and 10%, he says. (He rates Amazon a buy and his firm hasn't done recent banking for the company.)

It's not, however, a slam dunk. Internet consumers can be prickly when they think they're being hoodwinked. In February 1999, a brouhaha erupted when Amazon confirmed it charged publishers for placement on its site. The company walks a fine line as it tries to generate additional revenue without affecting its image as an objective source of information as well as commerce, says Sara Farley, an analyst with


. (She rates Amazon shares a neutral and her firm hasn't done recent banking for the company.) Though consumers are realizing that they may have to put up with some ads in exchange for lower prices, they may have privacy concerns if they think Amazon is selling their names.

More importantly, Amazon's success at this requires that the company maintain its popularity as a retailer. If it doesn't attract viewers, it can't command a premium (think of the difference in ad rates between

Who Wants to Be a Millionaire

and reruns of

Charles in Charge


Which means that publicly Amazon will stick to its knitting. It will keep selling stuff -- more stuff, of course, but still stuff. Going forward, though, the real profit driver may be the customers who come to its site, not the books that bring them there in the first place.

Wrong! Rear Echelon Revelations: Giving Palm the Back of the Hand


James J. Cramer

3/22/00 6:43 PM ET

When the chronicle of the selloff we just got through gets written, I think it will start with this



fiasco. Palm, in many ways, defined everything that is screwed up in this era. A much-despised-by-Wall Street company,



, issues a stub of a stock in a subsidiary that makes a wildly popular product.

It controls the float tightly, artificially boosting its own valuation by making the stub open wildly high. It gaps up hideously because "retail" loves the product and puts in market orders through e-brokers, many of which are batched together in a silly and self-defeating way.

Television gets into the act and hypes the thing mercilessly. And then the sickening slide from the opening begins. (


readers certainly will be familiar with that saga.)

This process is such a travesty that it is amazing no one does anything about it. The result is that people feel abused and ripped off. They think the system is rigged against them. (It isn't; it just doesn't work well.) And they become contemptuous of Palm, the stock and probably the product as well.

That sordid history has to be the only reason why my mailbox and the mailbox of my colleague

Matt "Falling Knife" Jacobs

were immediately jammed with hateful notes about how Palm will never go up. (Which, of course, inspired Matt to buy more because he can be even more ornery than I am at times.). That has to be the reason why thousands flocked to vote against the notion that Palm can go up. This merchandise is one tainted puppy. I wish I had known the depths with which this one stock seems to have brought people.

Whenever you have a speculative blow-off to the downside like this, whether it be in the sorrowful Linux plays, the dot-coms or wireless devices, it really puts the old kibosh on the market. That's what kick-started last week's decline. I didn't know it then. But I sure know it now.

Random musings

: Some jargon catch-up to do. A secondary is an offering of stock by a broker. It is an underwriting. A preannouncement is synonymous with the notion that a company will announce that its earnings are not going to meet expectations.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Palm. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

Evening Update: Bye! Bye! Dale! Campbell Soup CEO Resigns


Eileen Kinsella

TheStreet Recommends

Staff Reporter

3/22/00 8:41 PM ET

Campbell Soup

(CPB) - Get Report

said Dale Morrison resigned as president, CEO and a director of the company. The New Jersey-based company said its board has appointed David Johnson to serve as CEO until a special committee concludes a search for a new long-term CEO. Johnson had served as Campbell's president and CEO from 1990 to 1997.

The soup company hasn't been looking so

M'm! M'm! Good! of late. It was hit with shareholder lawsuits this year, alleging that company documents misled shareholders about revenues. Last month, Campbell recalled 109,000 pounds of canned vegetable beef soup in 13 states after consumers found long pieces of metal in the soup. What would

Andy Warhol


Robertson Stephens

priced 4 million shares of

Blaze Software


at $16 each, above the expected $12-to-$14 range. The company provides software that allows companies to personalize interactions around communication channels including the Internet, automated response systems, manned customer service systems and others. The Internet e-commerce play is expected to post strong gains when shares begin trading tomorrow.

In other postclose news (

earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified


Earnings/revenue reports and previews



said it anticipates first-quarter system revenue to exceed analyst expectations, citing the growth of the high-end Internet advertising industry. The current three-analyst estimate is for a loss of 33 cents.

National Data


reported third-quarter operating earnings of 44 cents a share, well above the five-analyst estimate of 33 cents but down from the year-ago 50 cents.

Rexall Sundown


posted second-quarter earnings of 26 cents, a penny ahead of the nine-analyst estimate and the year-ago 23 cents.


(SRCL) - Get Report

posted fourth-quarter earnings of 26 cents a share, well above the six-analyst estimate of 16 cents a share, and up from the year-ago 20 cents.

SunTrust Banks

(STI) - Get Report

CEO L. Phillip Human backed the consensus estimate for profits for the current year. The 21-analyst estimate calls for earnings of $4.41 a share.

U S Oncology


posted fourth-quarter earnings of 19 cents a share, beating the nine-analyst estimate of 15 cents, but down from the year-ago 60 cents.



posted third-quarter earnings of 12 cents a share, ahead of the eight-analyst estimate of 10 cents. The year-ago 5 cents includes a gain.

Mergers, acquisitions and joint ventures


(HMY) - Get Report

said it plans to sell its Puerto Rican division to a private investor for about $120 million to $125 million, including about $100 million in cash.


(TBI) - Get Report


Varco International


agreed to merge in a stock deal valued at about $834 million. The deal will create a combined oilfield equipment and services organization, called Varco International, with a market capitalization of about $1.8 billion based on closing stock prices. Tuboscope will issue 0.7125 new shares in exchange for each share of Varco common, resulting in about 94 million shares on a fully diluted basis.

Offerings and stock actions



said its board approved a 2-for-1 stock split.



set a 3-for-2 stock split.

Bond Focus: Slow Day in Treasuries Invites Speculation


Elizabeth Roy

Senior Writer

3/22/00 6:10 PM ET

Days like today in the bond market -- with hardly any price action, zilcho on the economic calendar and the only potentially interesting event of the day (a neutral

speech by



Alan Greenspan

) over by 8:30 a.m. EST -- invite general speculation.

On questions like why

some days the Treasury market seems to care about what the

Nasdaq Composite Index

is doing and other days, like today, it doesn't. On Monday, a big retreat by the Comp gave Treasury prices a boost, as falling stock prices supposedly gave bond traders reason to hope that the economy will cool off. But yesterday and today, big gains by the Nasdaq haven't done anything, really, to derail the bond rally.

"Maybe the bond market is taking its cues more from volatility in the equity market than from the equity market's direction," says Michael Ryan, senior fixed-income strategist at



In other words, if all the major stock proxies were flying today, it's hard to imagine the Treasury market holding in so well. Instead, "continued mixed signals from the stock market are probably preventing any selloff in bonds," Ryan says.

At the same time, long-maturity Treasuries continue to be supported by very favorable technical trends, Ryan says. Not only is the

Treasury Department

reducing the supply of long-maturity issues through its buyback program and by cutting back on new issuance, but the other bond markets, like the stock market, have been beset with volatility lately. That's why the 30-year bond's yield is lower than the Fed's new 6% target for the

fed funds rate

"with no sign the economy's slowing, no evidence the Fed's completed its tightening program, and no sign price pressures are abating," Ryan observes. The long end of the Treasury market may be overbought from a fundamental standpoint, but with technical factors ruling the day, "you don't want to get caught not owning them."

Walter Burke, chief technical strategist at

MCM Moneywatch

, confirms that the long-term trend in the Treasury market is still bullish. He cites principally the fact that the bear trend in yields that started in October 1998 has now been broken not only by the 30-year bond but also by the 10-year note. And the five-year note is close to breaking it. The two-year note is still in a bear trend but, Burke says, the point is that it's not just the bond any more. "It's spreading inside the curve too."

Burke also notes that the put-call ratio in options on bond futures -- a contrarian indicator -- at 1.52 is at its highest since 1996. Put options on bond futures are a bet that bond prices are going lower, while calls are a bet that bond prices are going higher. A high put-call ratio signals a high degree of pessimism, which may indicate that investors are on the verge of optimism.

The performance of the 10-year note has indeed been extraordinary over the last week. Its yield has fallen appreciably relative to that of the other Treasury benchmarks.

This has been interpreted as a very strong sign for the Treasury market. But at the same time, as

Bear Stearns

Treasury market strategist Avram Altaras points out, it's due in large measure to extraordinary demand for the most recently issued 10-year note, and not for the 10-year sector as a whole. That makes it less bullish as a signal, Altaras says.

Demand for the newest 10-year note presumably comes from the hedging community, which has rejected the 30-year bond as a hedging instrument because the government's supply-reduction plans have distorted its value. Along with the 10-year's increase in popularity as an alternative hedging instrument, it has become extremely cheap to finance. In short, the newest 10-year note isn't quite so hot a performer once you adjust for the low cost of financing it. "It's somewhat illusory," Altaras says.

In late trading the 10-year note was up 3/32 at 102 23/32, trimming its yield 1.2 basis points to 6.129%. The 30-year bond gained 4/32 to 103 31/32, dropping its yield a fraction of a basis point to 5.964%. The two-year note was unchanged at 100, its yield 6.497%.

At the

Chicago Board of Trade

, the June

Treasury futures contract fell 1/32 to 96 18/32.

Economic Indicators

The weekly

Mortgage Applications Survey

detected a decrease in refinancing activity and an increase in new mortgage activity. The Refinancing Index fell to 346.2 from 361.8, while the Purchase Index rose to 293.5 from 290.

Currency and Commodities

The dollar gained against the yen and the euro. It lately was worth 107.02 yen, up from 106.87 yesterday. The euro was worth $0.9608, down from $0.9639. For more on currencies, please take a look at



Currency Watch column.

Crude oil for May delivery at the

New York Mercantile Exchange

fell to $27.40 a barrel from $27.81.


Bridge Commodity Research Bureau Index

rose to 213.87 from 213.56.

Gold for April delivery at the


fell to $288.3 an ounce from $290.4.


Copyright 2000,