Publish date:

daily10-27-99's DAILY BULLETIN

October 28, 1999

Market Data as of Close, 10/27/99:

o Dow Jones Industrial Average: 10,394.89 up 92.76, 0.90%

o Nasdaq Composite Index: 2,802.52 down 8.95, -0.32%

o S&P 500: 1,296.71 up 14.80, 1.15%

o TSC Internet: 706.49 down 16.66, -2.30%

o Russell 2000: 416.77 up 0.98, 0.24%

o 30-Year Treasury: 97 09/32 up 22/32, yield 6.323%

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

Citigroup (C:NYSE) (PCLN:Nasdaq)

In Today's Bulletin:

o Internet: Bidding for a New Source of Revenue: Licensing Its Business Model
o Wrong! Dispatches from the Front: Amazon Conference Provides Little Confidence
o Evening Update: Amazon Slumps After Hours; Harmonic Buys C-Cube Unit for $1.7 Billion
o Bond Focus: Bonds Bounce Ahead of ECI, GDP on Fox News Channel

Charles Carlson, co-manager of the Strong Dow 30 Value fund and author ofbest sellers "Buying Stocks Without a Broker," "No-Load Stocks" and "TheIndividual Investor Revolution" will be joining this week's "Word onTheStreet" panel as it tackles the reconstitution of the Dow and how itwill affect the individual investor.

Plus, Carlson will do the "Drill" with Herb and Cramer and Adam's back tobutt heads with "Chartman" Gary B. Smith.

"" on Fox News Channel airs Saturdays at 10 a.m. and 6 p.m. ETand Sundays at 10 a.m. ET.

FNC is Fox's 24-hour cable news channel. To find Fox News Channel in yourarea, call your local cable operator or see our "TSC on Fox" page (look for the yellow box in the upper right hand corner).

Also on

Power Lines: Does Buffett's MidAmerican Maneuver Mean the Electricity Business is Sexy Again?

Don't bet on it -- the purchase says more about Warren's friendships than it does about the state of American utilities.

Brokerages/Wall Street: Rubin Receives Royal Reception From Salomon Traders

The deferential response the ex-Treasury secretary received could suggest Citigroup employees' desire for a leader they can trust without equivocation.

Trade Winds: Indonesia Faces a Long Road to Stability, Let Alone Prosperity

The new government is a welcome change for the troubled country, but the recent economic crisis exposed deep structural flaws in its financial system.

View From the North: WestJet Aims to Be Canada's Answer to Southwest

The regional upstart went public in July, and with the company's strong revenue and earnings, its stock is poised for continued solid performance.

Internet: Bidding for a New Source of Revenue: Licensing Its Business Model


Suzanne Galante

Staff Reporter

10/27/99 3:41 PM ET



announces its third-quarter results, expected Thursday afternoon, some analysts will be looking to see how a new source of revenue will be affecting the company -- revenue coming from licensing the broad-based patent that is the company's business model.

Back in 1998, patented a buyer-driven form of commerce that had its share of skeptics. In this year's second quarter, the company generated $112 million in revenue by matching airline tickets and hotel rooms with bids from its customers. Increasingly, the company is looking to the patent itself as a source of revenue.

"We would like to work with other companies," says Mari Shaw, a patent litigator with

Morgan Lewis and Bockius

. "But we have intellectual property, and we should be compensated for it."

Earlier this month, showed how earnestly it will enforce that patent when it sued


(MSFT) - Get Microsoft Corporation (MSFT) Report


Web site for allegedly infringing it.

Even though it is caught up in other legal snarls, Microsoft is still a risky adversary to take on. But if prevails, as many legal experts believe it will, the patent could mean more revenue growth for the company. Sara Zeilstra, a

Warburg Dillon Read

analyst, says she's confident she'll raise her revenue estimates for the company if outlines more specifics of licensing deals in the company's conference call Thursday. Zeilstra rates the stock strong buy. Her firm hasn't done underwriting for the company.

Moreover, much of the revenue generated from licensing agreements will fall directly to the bottom line because the costs to maintain them are minimal, says Richard Zimmerman, an analyst at

Janney Montgomery Scott

. That should boost's margins.

"From what we've seen so far, licensing can be a big part of the business," says Zimmerman, who rates the stock buy and whose firm hasn't performed any underwriting for the company. "Anything that is licensed will be gravy."

Analysts are expecting a loss of 10 cents per share for the quarter, according to

Thompson Financial/First Call

. Year-ago results weren't available.

So far, has licensed its patent to

Alliance Mortgage


Budget Rent-A-Car

, a unit of

Budget Group


, according to company press releases. recently announced it would license the patent to an online grocer start-up called

Priceline WebHouse Club

. Analysts say they don't expect to see any substantial impact on the company's income statement until the fourth quarter at the earliest.

Details have been sketchy on how much revenue these deals will bring in. Outside of Alliance, which along with its affiliates will pay $1.5 million for a license of an undisclosed length of time, no numbers are available. wouldn't comment further on the licensing agreements. says it talked with Microsoft for eight months in hopes of working out a mutually beneficial agreement, including a possible joint marketing deal and licensing agreement. During that time, provided Microsoft with confidential information. Then, alleges Expedia launched its own competing service.

"priceline believes Microsoft is infringing its patents and is using other information that Microsoft got under the mistaken belief there would be a joint effort to work together," says Evan Chesler, head of

Cravath Swaine & Moore's

litigation department and lead attorney for in its lawsuit. Microsoft couldn't be reached for comment.

On Oct. 13, filed its suit, which also charges Microsoft with violating the

Connecticut Unfair Trade Practices Act

. is seeking a permanent injunction, as well as actual and punitive damages.

Attorneys watching the case say's chances of emerging victorious are good. "Given the breadth of the claim, it's not going to be tough to do," says Jordan Sigale, a patent attorney with

Sonnenschein Nath & Rosenthal

. priceline is protecting a patent that is "a piece of land larger than North America."

Microsoft's most likely course is to argue that's patent on a method of business isn't valid. But in 1998, in a similar case between

State Street Bank


Signature Financial

, an appeals court held that business methods could be patented. In fact, two-thirds of patent suits where the defendant claims the patent stake isn't valid are upheld on appeal, estimates Mark Radcliffe, a patent attorney with

Gray Cary Ware & Freidenrich


The next step is in Microsoft's hands. The company needs to respond to the suit, and then there will be a discovery period, which stretches on for years, Chesler says. During that period, Microsoft is free to continue promoting its rival service.

And meantime, will have the legal threat to any company that resists licensing its patent.

Wrong! Dispatches from the Front: Amazon Conference Provides Little Confidence


James J. Cramer

10/27/99 6:26 PM ET

Lot of angry analysts on this

(AMZN) - Get, Inc. Report

call. My partner,

Jeff Berkowitz

, is frantically trying to short some stock as one FOA -- that's Friend of Amazon -- after another questions whether the company has any plan to make money, or at least stem the losses or do something that resembles a business.

Jeff, who can spot a downgrade 10 miles away with his eyes closed, expects at least a couple tomorrow. He tells me that he was only able to sell about 1,000 shares short before the market collapsed into the low 70s. It is a point of pride with him, even though we won't make much money.

Jeff's always thinking about potential problems way in advance. The company is doing one of those "Who knows?" things that never inspire much confidence.

Of course, this is a work in progress. Maybe there will be some dynamite guidance off-line.

But right now, it looks like the only thing that is going to get dynamited is the stock -- tomorrow morning!


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was short 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: Amazon Slumps After Hours; Harmonic Buys C-Cube Unit for $1.7 Billion


Eileen Kinsella

Staff Reporter

10/27/99 9:39 PM ET

Online retailer

(AMZN) - Get, Inc. Report

posted a third-quarter pro forma operating loss of 26 cents a share, 2 cents better than the 22-analyst

First Call/Thomson Financial

estimate of a 28-cent loss but wider than the year-ago loss of 8 cents a share. The company said revenues rose to $356 million from $154 million a year earlier. Amazon warned that gross profit margins are likely to fall as marketing expenses rise in the fourth quarter, although revenue should be significantly higher than the third quarter's.

reported on Amazon's results in a

story this evening. The stock was suffering in after-hours action (see below).


(HLIT) - Get Harmonic Inc. Report

agreed to buy the


business of

C-Cube Microsystems

(CUBE) - Get CubeSmart Report

for about $1.7 billion in stock, in an effort to strengthen its video, voice and data delivery over different networks. C-Cube shareholders will receive 0.5427 shares of Harmonic stock for each share of C-Cube.

After-Hours Markets

Tonight was


(AMZN) - Get, Inc. Report

night. It crushed all other issues traded on

Island ECN

, on a whopping 436,788 shares. It led


. Why? The company released third-quarter results that beat expectations, but it said fourth-quarter losses might expand because of increased marketing spending.

TheStreet Recommends

James Cramer's

got his

opinion, while

George Watson's

got the


Island ECN, owned by Datek Online, offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 8 p.m. EDT. Prior to Sept. 15 Island offered trading from 8 a.m. to 5:15 p.m. EDT


MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of Morgan Stanley Dean Witter's (MWD) Discover Brokerage and Mellon Bank's (MEL) Dreyfus Brokerage Services. Clients can trade 200 of the most actively traded New York Stock Exchange and Nasdaq Stock Market issues, 4:30 p.m. to 8 p.m. EDT Monday through Thursday. Prior to Oct. 11, MarketXT traded issues from 6 to 8 p.m. Need more information on the ins and outs of after-hours trading? Click here to see how the rules change when the sun goes down.


Eric Gillin

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

Adept Technology


posted first-quarter loss of 15 cents a share, narrower than the two-analyst estimate of a 20-cent loss but down from the year-ago 4-cent profit.

Agribrands International

(AGX) - Get Argan, Inc. Report

posted fourth-quarter earnings of $1.08 a share including gains. The single analyst expectation was $1.09 a share, while the year-ago figure was 41 cents a share including items.


(AMTD) - Get TD Ameritrade Holding Corporation Report

posted a fourth-quarter loss of 5 cents a share, matching the 10-analyst estimate but down from the year-ago profit of 3 cents.

Anchor Gaming


posted first-quarter earnings of $1.30 a share, beating the three-analyst estimate of $1.28 but down from the year-ago $1.48.

Concur Technologies


posted a fourth-quarter loss of 54 cents a share, wider than the four-analyst estimate of a 52-cent loss but narrower than the year-ago $2.19 loss.

Cox Communications


posted third-quarter earnings of 2 cents a share including a gain on investments. The seven-analyst estimate was for a loss of 7 cents a share, while the year-ago earnings were $1.95 a share, also including gains.

CSG Systems

(CSGS) - Get CSG Systems International, Inc. Report

posted third-quarter earnings of 29 cents a share, in line with the 11-analyst estimate and up from the year-ago 26 cents.



posted a third-quarter loss of 36 cents a share, narrower than the two-analyst expected loss of 78 cents and the year-ago loss of 39 cents. The company said per-share figures were computed on a pro forma diluted basis, assuming conversion of preferred stock from the original date of issuance and giving effect to the 1-for-2 reverse stock split effected in connection with's August IPO.



reported fourth-quarter earnings of 64 cents a share, beating both the four-analyst estimate of 59 cents and the year-ago 45 cents.


(MKL) - Get Markel Corporation Report

posted third-quarter earnings from core operations of $1.77 a share excluding items, missing the four-analyst estimate of $2.06 and the year-ago $2.01.



reported third-quarter operating net of 9 cents a share, beating the five-analyst expectation that the company would break even and the year-ago break-even result, which the company notes was antidilutive.


(SDP) - Get ProShares UltraShort Utilities Report

reported third-quarter earnings of 1 cent a share including a gain. The single-analyst estimate was for break even results, while the year-ago earnings were 64 cents a share.



reported a second-quarter loss of 18 cents a share, narrower than the two-analyst estimate of a 27-cent loss and the year-ago 29-cent loss.

U.S. Food Service

(UFS) - Get Domtar Corporation Report

posted a first-quarter profit of 23 cents a share, beating the 12-analyst estimate of 22 cents and the year-ago 18 cents.

Zebra Technologies

(ZBRA) - Get Zebra Technologies (ZBRA) Report

posted third-quarter earnings of 66 cents a share, beating the seven-analyst estimate of 57 cents and the year-ago 42 cents.



reported a third-quarter loss of 14 cents a share, narrower than the two-analyst expected loss of 21 cents but wider than a year-ago pro forma loss of 4 cents a share.

In other earnings news:

Mergers, acquisitions and joint ventures



said it signed a five-year memory chip supply deal with

Micron Technology

(MU) - Get Micron Technology, Inc. (MU) Report

. Though terms were not disclosed, the deal was structured similarly to a pact Micron reached with



that analysts estimated to be worth up to $20 billion over five years, according to



Offerings and stock actions

Bear Stearns

priced the 6.25 million-share IPO of

Data Return


at $13 a share, above the expected range of $10 to $12.

Heartland Express

(HTLD) - Get Heartland Express, Inc. Report

said it bought back 3.5 million shares, or 11.7% of its outstanding common stock.

Morgan Stanley Dean Witter

priced 10 million shares of

Triton PCS


at $18 a share, above the expected $15-to-$17 estimated range.


El Al Israel Airlines

said it agreed to purchase three 777-200ER aircraft from


(BA) - Get Boeing Company Report

for $400 million. El Al also said it plans to buy three or four A330's from

Airbus Industrie

for about $400 million but that a further two-week evaluation was required.

A unit of

MCI WorldCom


was awarded a major U.S. military communications contract for Asia and the Pacific region that could be worth up to $4 billion over 10 years.

Bond Focus: Bonds Bounce Ahead of ECI, GDP


David A. Gaffen

Staff Reporter

10/27/99 5:40 PM ET

After a strong advance in the morning, Treasuries rode the wave through the rest of today's session, getting a brief bounce after a well-received two-year Treasury note auction.

The market's been cautious for the last week in anticipation of tomorrow's

Employment Cost Index

report, and analysts believe today's activity was a response to the market's innate negativity.

"I think we're just going to move whatever direction" the ECI says, said Gib Clark, manager of government trading at

Zions First National Bank

in Jersey City, N.J.. "There doesn't seem to be any support to buy the market, and it seems like most of the selling is done in the near-term."

Lately the 30-year Treasury bond was up 21/32 to 97 8/32, near its highs of the day, dropping the yield 5 basis points to 6.33%.

The Treasury sold $15 billion in two-year notes at its regular monthly auction this afternoon at a high yield of 5.395%. Prior to the auction, the note's yield rose as high as 5.99%, and the wide difference (as these things go) means traders bid aggressively for the new issue. The two-year note reacts to expectations of


policy, and many analysts now feel the market has priced in a rate hike to 5.5%.

"It was a very strong two-year auction," Clark said. "It caused a pop in the market. We just got close to 6% and that seemed like a good value."

Analysts weren't worried about the consequences of rallying a day before a potentially negative number for the market. Tomorrow's third-quarter ECI figure, an important wage inflation indicator, may set the tone for Treasury trading leading up to the Fed's Nov. 16 policy meeting. The consensus estimate, according to


, is for a 0.9% increase in the ECI. A larger figure could cause the long bond's yield to head toward 6.5%. A figure that falls short of expectations may not be enough to stave off a rate hike, but it would ease the market's fears of growing inflation.

"I'll look at the price behavior after release of the number," said Richard Schwartz, senior vice president at

New York Life Asset Management

. "If it's at 0.9% and that takes the market

higher, it's a message that we'd gotten oversold, and there was enough bad news already built in. But if it trades off it tells you that investors or market participants are looking for a way out."

Not to be forgotten, third-quarter GDP figures are also slated for release tomorrow. Subject to two subsequent revisions, this figure is expected to show an economic growth rate of 4.7% during the third quarter, compared with 1.6% rate of growth during the second quarter. Inventory buildup and strong consumer spending has likely kept the economy growing steadily, despite a widening of the trade deficit during the quarter.

The market reacted positively to the September

durable goods

figures released this morning, although bonds had already been rallying. New orders for durable goods fell 1.3% during September, after a 1% rise in August.

But bonds were moving up coming into the U.S. open, supported by rallies in European bond markets. Eurozone money supply grew at a 6.1% annual rate in September, and that got the other bond markets convinced the

European Central Bank

will act to fight inflation and raise interest rates at its Nov. 4 meeting .

This afternoon, the Treasury announced a surplus of $56.4 billion in the month of September. The government closed out fiscal 1999 with a budget surplus of $122 billion, compared with $69 billion for fiscal 1998.

The fed funds futures contract listed on the

Chicago Board of Trade

was lately pricing in a 72.9% probability of a


rate hike, from 5.25% to 5.5%, at its next meeting. Yesterday, the November fed funds contract was pricing in the same chance of a rate hike.


Street Sightings

James J. Cramer will be participating in


New Economy Conference Thursday, Oct. 28 at the Millennium Broadway. He'll be part of a panel titled "Barbarians at the Temple." The panel will begin at 3 p.m. EDT.

Copyright 1999,