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daily07-20-99's DAILY BULLETIN

July 21, 1999

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Market Data as of Close, 7/20/99:

o Dow Jones Industrial Average: 10,996.13 down 191.55, -1.71%

o Nasdaq Composite Index: 2,732.18 down 98.11, -3.47%

o S&P 500: 1,377.10 down 30.55, -2.17%

o TSC Internet: 593.73 down 23.03, -3.73%

o Russell 2000: 453.55 down 7.82, -1.69%

o 30-Year Treasury: 91 04/32 up 7/32, yield 5.882%

Companies in Today's Bulletin: (MPPP:Nasdaq)

PepsiCo (PEP:NYSE)

Siebel (SEBL:Nasdaq)

In Today's Bulletin:

o Tech Savvy: Stampede at the Corral
o Brokerages/Wall Street: Datek Begins After-Hours Trading
o Evening Update: PepsiCo Beats Estimates; IPO Priced Above-Range
o Bond Focus: Sagging Stocks Boost Resilient Treasuries

Also on

Brokerages/Wall Street: IPO Lifeboat May Float Philly Stock Exchange

A major seat holder says an IPO could provide much-needed cash, and thinks the struggling exchange could be valued at $300 million.

Banking: Weak Revenue Growth Spurs a Run on Net.B@nk Stock

The stock drops 11% on news of a second-quarter revenue shortfall.

Market Features: Selloff Signals a Good Time for a Summer Break From Stocks

Earnings growth and interest rates could scarcely be friendlier for the market, so today's downdraft looks ominous indeed.

Mutual Funds: It Would Have Had the Most Grammatical Prospectus Around

Alas, an arbitrator says a New York Times copy editor can't start a mutual fund.

Tech Savvy: Stampede at the Corral


Jim Seymour

Special to

When in early May I wrote a couple of

columns on MP3, the hot standard for digitized music you can download over the Web, I was buried in reader mail from

subscribers, who turned out to have both great interest in and, ahem, strongly held feelings about this new market.

I'm going to revisit the MP3 mania later this week, and take a close look at the prospects of



, one of the most highly touted players in this nascent market.

But this week is already exploding with interest in and news about the digital-music business. The minor influence is

Jupiter Communications'

fourth annual


conference in New York City, which opened yesterday and has been a rich source of new-product announcements, rumors and whispered alliances -- or, if you prefer, the classic 3 H's: hope, hype and hysteria. More than 1,300 attendees have been mixing and conferring, in a swirl of improbable dress, loud music, hallway deal-making and show-floor heart-breaking. Oh, yes: and some VERY loud parties. The poor old Marriott Marquis may never be the same.

But in a week of dazzling IPOs on Wall Street -- at least in number, if not in quality -- the second and much larger MP3 influence has been the bump and hustle over one of the likely stars of the week's IPO agenda,

(MPPP:Nasdaq), whose offering is to be priced Tuesday.

That pricing alone is going to be an adventure: This offering has been bumped from an original $9-$11 estimate to a $16-$18 range on July 12 and again to $24-$26 today. Tonight and tomorrow morning? Who knows?

Assuming the 12.3 million shares sell out at a median price of $25 -- a very safe bet -- the company will wake up tomorrow with proceeds of about $290 million after paying its underwriters ... and a market cap of (insert your best guess here).

But almost whatever your wrote in that space, it's probably too low, because this is one of the hottest IPOs to come down the pike in a long, long time. Indeed, the real betting today is on the multiple of the offering price will earn.

If closes tomorrow at the maximum offering price, 26 -- hah! -- its 66.6 million shares will be worth a whopping $1.73 billion. But say it triples, and closes around 78. Make the market cap $5.19 billion. A quadruple -- a close of 104 tomorrow isn't impossible, and is in fact the favorite number among some analysts I've talked with today -- and MP3's founders will party all night Wednesday evening, to the tune of a market cap of almost $7 billion.

The company has also disclosed that it has presold 3.3 million shares to France's

Groupe Arnault

, one of the forces behind the pricey-stuff conglomerate

LVMH Moet Hennessy Louis Vuitton


. LVMH has also promised to spend $150 million on advertising, promotion and marketing services from over the next three years, according to's most recent


filings. Just another bonus.

Ahh, Internet economics.

So what does have to offer? Well, first, visibility and a great name. Don't tell me you can't promote your company during the pre-IPO "quiet period." and its underwriters have done a superb job of managing the news and the market's expectations in the months leading up to tomorrow's first trading day.

I'm not suggesting anything illegal, or even questionable. You can argue that the MP3 world itself was so hot that anything named "" would have gotten a lot of press during that time ... and you'd probably be right. But the avalanche of gushy press -- I know, I'm doing it, too, but remember that I'm pure of heart -- has been unbelievable. offers a huge range of downloadable music on the site, plus access to the most popular software tools needed to play and transfer MP3 files, from the classic WinAmp to MusicMatch to


(REAL) - Get Report

RealJukebox.'s forte has been the promotion of new artists of whom you've probably never heard, who are eager to give away their music through in return for the exposure they hope will lead to a recording contract, tours, glitz and fame.

It's done a great job.

But moving beyond that promotional, public-service model to

making money

may be hard. After all, has been at the heart of the "no restrictions" movement that has opposed efforts by the industry alliance, the

Secure Digital Music Initiative

, which earlier this month published its more-or-less-final first-round standards for encoding digital-music files to prevent their distribution without payment.

If you believe, as I do, that "free MP3" music is already way beyond the point where closing the barn door will make a serious dent in the amount of music sloshing around the Net, then you've gotta love what has done ... and, probably, cheer whatever unreal market cap it scores tomorrow.

But if you think that a mechanism that assures that songwriters and artists can get paid to keep on writing and singing and playing, and that the SDMI approach, as flawed as it unquestionably is, is a start on that, then you've got to wonder about, and how it will ever achieve any level of profitability commensurate with tomorrow's eventual market cap.

If you got, or can get, a hook into some shares tomorrow morning, then you're going to make money. A lot of money. If not, it's probably too late. Either way, stand back in the morning, or you'll get flattened by the buyers rushing to set a possible first-day IPO record.


Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are consulting clients of Seymour Group, or have been in recent years. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

Brokerages/Wall Street: Datek Begins After-Hours Trading


Caroline Humer

Staff Reporter

It's here.

Datek Online

, the bare-bones online brokerage, quietly started after-hours trading Tuesday evening.

Online investors were able to buy and sell


stocks in limit orders placed from 4 p.m. to 5:15 p.m. EDT by accessing the


electronic communications network through Datek, a firm spokeswoman confirmed.

Datek says it offered trading on a limited basis through the firm's express servers, a streamlined trading service without graphics that only allows for limit orders. But on Wednesday, the company plans to extend the service across its system, the spokeswoman says.

Datek is the first major online brokerage to offer its clients the somewhat controversial opportunity to trade after hours.

Discover Brokerage

, a unit of

Morgan Stanley Dean Witter


, also plans to offer extended trading through

Eclipse Trading

, an alternative trading system. Eclipse said Tuesday it's on track to start up later this summer.

Both the

New York Stock Exchange

and the

Nasdaq Stock Market

were running quickly

toward after-hours trading this spring before

pulling back to study the issue further.

At a June 30 summit of industry leaders and stock exchanges organized by the

Securities and Exchange Commission

, securities firms and regulatory officials decided to create four committees to study extended-trading related issues and called for cooperation and coordination among the players. And SEC Chairman

Arthur Levitt

has consistently indicated that he wants to make sure investors are protected in any after-hours trading environment. An SEC spokesman wasn't available to comment Tuesday afternoon.

Datek told analysts during a conference call on earnings Tuesday morning that it would be starting extended trading this summer, but didn't say that the trading was debuting this week, a spokeswoman says.

One Datek customer said in an email that he had tried to buy 300 shares of a telecom stock after hours but couldn't find a seller. "I did notice a lot of activity on


(MSFT) - Get Report



(DELL) - Get Report

on Island. The more liquid issues like these is where most of the action was," he wrote.

The customer said he received an email a few days ago indicating that the company would start online trading. Then, on Tuesday, there was an option to enable after-hours trading by reading through a disclaimer.

Datek's disclaimer laid out some of the risks of after-hours investing that academics, regulators and securities firms have expressed during the past few months. "Stock prices may be more volatile. News stories can have a greater impact on the price movement of a stock. The same liquidity may not exist on the Island ECN during after hours as it does during normal market hours. Less liquidity usually results in wider spreads between bids and offers. This raises the effective cost to trade in such markets."

Evening Update: PepsiCo Beats Estimates; IPO Priced Above-Range


Heather Moore and

John J. Edwards III

TheStreet Recommends

Staff Reporters


(PEP) - Get Report

recorded second-quarter earnings of 31 cents a share, topping the 15-analyst

First Call

estimate of 29 cents and moving ahead of the year-ago 28 cents.

Credit Suisse First Boston


(MPPP:Nasdaq) 12.3 million-share IPO above-range at $28. The company is an online music distributor. The price range for its offering was raised to $16 to $18 from $9 to $11, and then to $24 to $26.

Among other new issues,

Donaldson Lufkin & Jenrette


Insight Communications'

(ICCI:Nasdaq) 23 million-share IPO above-range at $24.50. The company is the 8th largest cable TV system operator.

Finally, DLJ priced's

(VOYN:Nasdaq) 9 million-share IPO top-range at $15. The company is the largest ISP in the Midwest.

In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews



beat analysts' expectations again in the second quarter and told investors and analysts in a conference call that business for the remainder of the year and into Year 2000 looked healthy.

In the second quarter ended June 30, the maker of front-office software earned 24 cents a share, beating the forecast of 21 cents. Net revenue was $164.4 million, up from $90.0 million a year ago, while net income jumped to $25.8 million from pro forma net income of $12.0 million at the same time last year.

Despite technical glitches on the conference call that made hearing difficult and intermittent, CEO Tom Siebel managed to get his message through: The market for front-office software was "large, growing rapidly" and still was only about 5% penetrated, leaving more room for Siebel to expand.

BancBoston Robertson Stephens

analyst Jon Ekoniak, whose firm has underwritten for Siebel, said he was impressed with Siebel's quarter, noting: "It was a great quarter across the board. It beat our estimates pretty solidly in license revenue, services (revenue) and EPS."

But the solid quarter with its sequential drop in day sales outstanding, or DSOs, was still not enough to change the mind of

Adams Harkness Hill

analyst Ben Rose, who said he will stick with his sell recommendation on the stock. DSOs, a measure of how fast customers are paying for products, fell to 95 from 99 last quarter and were one of several reasons Rose downgraded the stock about a week and a half ago.

"DSOs are only one of several concerns," Rose said. "The company is still at a red line. There are still balance sheet issues that raise a few eyebrows." Rose, whose firm has not underwritten for Siebel, declined to give more detail immediately after the conference call.

On the call, Siebel also quashed rumors that the company was interested in buying troubled enterprise resource planning, or ERP, company



, which reported a drop in revenue again after the market close. PeopleSoft's second-quarter revenue slipped to $312.2 million from $320.5 million a year ago. Earnings fell to $3.0 million, or a penny a share, from $39.2 million, or 15 cents a share, a year ago. Though the maker of back-office software had earnings that matched the consensus estimate, some analysts said license revenue of $57.9 million was lower than some had forecast.

"The ERP market is really crummy," Siebel said. "The market problems there are not related to Y2K or a temporary market phenomenon. The store's closed there. It's a contracting market with incredible competition and almost panic price-slashing going on. What is it that we would find attractive about that?"

(See the earnings chart below for more earnings information on Siebel and PeopleSoft.)


Medora Lee

Bell & Howell


reported second-quarter earnings of 46 cents a share, a penny ahead of the three-analyst view and up from the year-ago 38 cents. The company said it expects to report 1999 earnings of about $2 a share vs. estimates of $2.02.

Cadence Design Systems


reported second-quarter earnings of 8 cents a share, missing the 12-analyst estimate of 20 cents and falling behind the year-ago 28 cents. The company also warned that its third-quarter revenue would fall from the second quarter's $264 million and said that it expects to return to year-over-year revenue growth in the second quarter of 2000.

CompuCom Systems


recorded second-quarter earnings of 5 cents a share, on target with the four-analyst view but below the year-ago 9 cents. The company also said its CEO and president, Ed Anderson, will resign Aug. 1. Chairman Harry Wallaesa was named interim CEO and COO Tom Lynch was named president.

RF Micro Devices


reported first-quarter earnings of 25 cents a share, 3 cents better than the nine-analyst expectation and up from the year-ago 5 cents. The company also set a 2-for-1 stock split.

Suiza Foods


said it will take a $5 million restructuring charge in its second quarter. The dairy products maker said it's reorganizing its Florida facilities to improve efficiency.

Washington Mutual

(WM) - Get Report

posted second-quarter earnings of 82 cents a share, in line with the 19-analyst outlook and above the year-ago 71 cents. The company also announced plans to buy back 30 million shares.

Mergers, acquisitions and joint ventures


Justice Department


Allied Waste's


$9 billion acquisition of



but asked the companies to shed more than $500 million in assets.

Sprint PCS


said it will buy


(QCOM) - Get Report

Digital PCS phones for $400 million.




Medical Manager


agreed to a stock exchange ratio for their pending merger. Each share of Medical Manager will be converted into the right to receive 0.625 of a Synetic share.

Offerings and stock actions


(CLX) - Get Report

set a 2-for-1 stock split.


In a move designed to allow


(F) - Get Report

to build a new plant in the state of Bahia, Brazil announced new tax incentives for automakers to set up plants in the poorer northern half of the country.


Bond Focus: Sagging Stocks Boost Resilient Treasuries


David A. Gaffen

Staff Reporter

The bond market showed resilience today, climbing into positive territory after spending most of the morning underwater.

Prolonged weakness in the stock market, as well as a late recovery in European bonds, helped Treasuries into the black.

"It's a decent comeback, all in all," said Bill Kirby, co-head of government bond trading at

Prudential Securities

. "It's a better performance, but we're not ready to break out of the range in front of


on Thursday."

However, the market may be feeling somewhat relaxed ahead of that important congressional testimony on monetary policy from

Federal Reserve


Alan Greenspan

, judging by the strength in the short maturities of the Treasury yield curve. While the benchmark 30-year Treasury bond rose 5/32 to 91 5/32 today, the two-year note was 4/32 higher, dropping the note's yield by 4 basis points to 5.40%. The 30-year's yield fell 1 basis point to 5.89%. (It takes less of a price movement in shorter maturities to affect the yield.)

Treasuries got a lift today from weakened stocks, which continued to slide off the record levels all three major indices reached last week. The

Nasdaq Composite Index

was down 98 points, or 3%, today while the


fell 192 points.

The 30-year bond was down as much as 17/32 before rallying in the afternoon. The two-year note was off 3/32 at its low at 8:29 a.m. EDT.

"The story is really in the short end," said Mike McGlone, vice president at

Aubrey G. Lanston

. "Stocks have been weak all day, and it seems to have accelerated the bid" in short maturities.

The spread, or difference in yield, between two-year notes and the 30-year Treasury bond rose to 49 basis points today compared with 41 basis points one week ago. Two traders said participants were selling 30-year bonds and buying two-year notes, reflecting a modicum of confidence that the Fed will not raise rates at the Aug. 24

Federal Open Market Committee


Two-year notes trade on expectations of Fed monetary policy, and the market's heartened by last week's release of the June

Consumer Price Index

, unchanged for the second month in a row, and also by

Richmond Fed


Al Broaddus

. Normally one of the most supportive of higher interest rates, Broaddus said yesterday that he was relieved that April's surprising 0.4% rise in core CPI seems to be an anomaly. These words have the market hoping Greenspan's going to indicate that interest rates will be left alone, at least at the next meeting.

European bonds, which have in recent weeks contributed to Treasury selloffs, also lent a hand in the market's strength. The German 10-year September Bund futures, which closed at 94.07 yesterday, was down by about one-half a point before recovering and finishing at 94.51, yielding 4.74%, according to one trader.

Recent weakness in the dollar against the yen also may have brought in some buyers, and paradoxically, today's strength may have prompted buying as well. McGlone said long-term foreign buyers tend to come into the Treasury market when the dollar weakens, figuring it to be a value opportunity. "The knee-jerk reaction yesterday when you see dollar weakness is for the market to sell long paper, but from an investor standpoint, dollar weakness begets buyers," he said.

Dollar/yen rose today as the Federal Reserve did the

Bank of Japan's

bidding, intervening in the currency market to weaken the yen against the dollar. Japanese officials have worried about excessive strength in the yen, because a stronger currency makes exports more expensive, undermining the country's economic recovery. Dollar/yen was lately up 0.02 to 118.90.

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