TheStreet.com's WEEKEND BULLETIN
September 25, 1999
Market Data as of Close, 9/24/99:
o Dow Jones Industrial Average: 10,279.33 down 39.26, -0.38%
o Nasdaq Composite Index: 2,740.41 down 9.42, -0.34%
o S&P 500: 1,277.36 down 3.41, -0.27%
o TSC Internet: 617.61 up 5.96, 0.97%
o Russell 2000: 417.09 down 3.12, -0.74%
o 30-Year Treasury: 102 06/32 up 12/32, yield 5.947%
Companies in Today's Bulletin:
In Today's Bulletin:
o Internet: Net Grocers' Shopping List Includes Customers
o Wrong! Dispatches from the Front: Betting on a Bluff From Shoe-Box Steve
o Evening Update: Walden Residential to Be Acquired for $580 Million; After-Hours Trading Update
o Bond Focus: Bonds Get Another Lift From Stocks
"TheStreet.com" on the Fox News Channel
Scott Reamer of SG Cowen will cover Internet and new media companies with this week's "Stock Drill" team of Jim Cramer and Herb Greenberg. And our "Chartman" team, Gary B. Smith and Adam Lashinsky experience the "thrill of victory and the agony of defeat" this week as they go over past calls and predictions. Plus, this week's "Word on TheStreet" will take a look at market averages. Averages are up for the year, but a closer look reveals that more stocks are down than up in calendar year 1999.
"TheStreet.com" on the Fox News Channel airs Saturdays at 10 a.m. and 6 p.m. ET and Sundays at 10 a.m. ET.
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Also on TheStreet.com:
Mutual Funds: 'Know What You Own' Takes On New Meaning for Peter Lynch
Lynch's right to utter his signature mantra is challenged by a rival fund firm that trademarked the slogan.
Brokerages/Wall Street: SEC Chief's Reform Push Has Some Questioning Limits of Competition
Radical changes beckon as regulators try to push aside illiquidity and market fragmentation.
Tech Savvy: Forget About the Gang of 100; Focus On eBay's Real Strengths
Here's a baker's dozen of eBay's strengths that will make this a company to contend with for years to come. Discuss your ideas on our message boards.
Internet: Net Grocers' Shopping List Includes Customers
9/24/99 5:28 PM ET
SAN FRANCISCO -- If they build it, you will shop.
That seems to be the belief behind the recent frenzied activity among Net grocery stores. Since
said in July that it planned to spend $1 billion building a nationwide distribution network, there's been one big event after another.
Just this week, Webvan lured George Shaheen away from powerhouse
to become its chief executive.
decided this infant market looked awfully tasty, too, so it decided to start offering groceries, though you have to pick them up yourself.
Of course, there's big money behind these companies, too.
, just 2 years old, has attracted millions from the likes of
Kleiner Perkins Caufield & Byers
chieftain James Barksdale.
But in the midst of everyone being very, very busy, having important meetings and cutting really big deals, there's one thing folks seem to have forgotten: There's precious little evidence that this concept works.
"I love the concept," says Ted Gomoll, senior vice president at investment company
Sporl & Co.
, who sat in on HomeGrocer's presentation at a
Hambrecht & Quist
conference earlier this year. "It's great for the customer, but it remains to be seen if they save money and if it's reliable."
"It's not a slam-dunk one way or another," adds Andrew Mann, a fund manager at
, which is long Net grocer
. "It's easy to become obsessed with a winner-take-all mentality."
Peapod is perhaps one of the best indicators of this market. For 10 years, the company has been trying to get people to buy groceries online. But at June 30, its customer base actually fell 14% to 89,900 from 104,000 a year earlier. Revenue also declined.
Sure, Peapod started with what apparently is the wrong approach, filling orders by shopping at local grocery stores and then delivering the goods. Most of the rest, including Peapod now, are building their own warehouses. Peapod says the transition to this approach, along with a marketing cutback, attributed to its numbers sliding.
, which runs its service only in the Boston area so far, hasn't done much better. Customer figures hit just 3,000 at June 30, up only 1,000 from a year earlier.
Webvan just opened its
in June and had 16,000 customers in the San Francisco area at the end of August, while HomeGrocer had about 30,000 in Seattle and Portland as of earlier this month.
So then what's all the hoopla about? Potential, of course -- the Internet mantra.
expects Internet shopping to account for about 1.5% or $7.5 billion of all grocery purchases by 2003. (By comparison, Internet book buying is expected to be about $4.9 billion by then.) And how hard can it be to get to a measly figure like 1.5%? Webvan talks about building 26 highly automated distribution centers around the country over the next three years. HomeGrocer plans to move into at least 20 new markets over the next year.
And so the frantic race continues.
Two high-profile names it has lured in are Webvan's Shaheen and HomeGrocer's Mary Alice Taylor, who two weeks ago joined the company as chairwoman and chief executive.
Shaheen is leaving a firm with 65,000 people for one with 414, as of June 30. Of course, according to
Securities and Exchange Commission
documents, he's getting options that amount to a 5.1% stake in the company, which would have a total value of $195 million if the company goes public at 12 per share, the middle of its expected range.
"He's incredibly savvy about what's going on with the Internet and is in general a brilliant leader," says Christine Ferrusi Ross, a technology services and outsourcing analyst at
. "Having said that, his experience is in running a labor-intensive business. So his ability to make the leap to a company that's labor-averse -- given the mega-investment in automated distribution centers -- will need to be watched."
Taylor's strengths seem to fit more with what Internet grocery stores need -- perfect customer service. She previously was executive vice president of global operations at
. But her real strength for this new job came from 16-year career with
"Is this an Internet company? A grocery company? A logistics company? Or a customer service company?" asks Mark Gorenberg, a partner at HomeGrocer investor
Hummer Winblad Venture Partners
. He also sits on the HomeGrocer board. "At the end of the day, this is clearly a customer service company."
Taylor says she figures the concept will work because people are so busy these days that they'd much rather order online and have their groceries delivered than spend their timing combing the aisles. She also says HomeGrocer is moving rapidly to establish locations, giving it an advantage in gaining customers in new market.
But it'll also take doing all the seemingly simple things like getting still-frozen ice cream to someone's house to make it work. The logistics of making an Internet grocer's business work without glitches will likely be the biggest challenge for all of the companies, says Gorenberg.
And the company that accomplishes this will bring customers back. "It's all about repeat business," says Craig Cohen, president and CEO of
and a Peapod user.
Indeed, but for now the first challenge is getting people to decide they need the service the first time.
Wrong! Dispatches from the Front: Betting on a Bluff From Shoe-Box Steve
James J. Cramer
9/24/99 5:19 PM ET
We used to play a lot of poker at
The Harvard Crimson
in the 1970s, particularly those of us who worked there during the summer. None of us had a lot of money. Almost all the money I had came from delivering the darned paper after I had taken it off the press. What a thankless job that was, although it was a sure cure for insomnia.
What I remember most about those games was "Shoe-Box Steve." Yep, every game we played, Steve Ballmer, now president of
, then general manager of the
(I was the president), would bring this shoe box full of nickels and dimes to bet with. It was always unnerving because Ballmer was a superior bluffer and
you could never tell from the stupid shoe box how much money he had left
. Was is 10 bucks? Was it $30? Was it $4?
Nobody could bluff like that guy.
I see nothing has changed in the last 20 years. Ballmer's still bluffing when he sees fit. His "tech stocks are overvalued" gambit no doubt suited some need he has, a need we saw often in the days of Shoe-Box Steve.
I've always loved the guy, but I know to take what he says with a grain of salt. It is what he does -- which is to hold on to as much Microsoft as humanly possible -- that matters to me. That's been Shoe-Box Steve's most important tell.
I bought some 'Soft today. I think he's bluffing again.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Microsoft. 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: Walden Residential to Be Acquired for $580 Million; After-Hours Trading Update
9/24/99 8:37 PM ET
Walden Residential Properties
agreed to be acquired by
Olympus Real Estate
Westdale Properties America
, two privately held companies, in a deal worth about $580 million. The agreement values Walden, a Dallas-based REIT that owns about 140 apartment properties, at $23.25 a share, a considerable 23.2% premium to its Friday closing price of 18 7/8.
Island ECN, owned by Datek Online Holdings, 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
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
Cort Business Services
warned it expects third-quarter profit to fall below estimates due to slower sales. The furniture rental company said it expects to report earnings of 52 cents a share in the third quarter, below the lone-analyst estimate of 58 cents a share.
Mergers, acquisitions and joint ventures
New Venture Gear
, a joint venture between
said it will expand its plant in East Syracuse, N.Y., by 100,000 square feet and create 300 new jobs.
Offerings and stock actions
, which designs and sells high-performance computer networking systems, upped the expected price range for its 5 million-share IPO to $22 to $24 a share from $14 to $16 a share.
Deutsche Banc Alex. Brown
is underwriting the issue.
said its board approved a 5-for-4 stock split, in the form of a stock dividend, for shareholders of record Oct. 4, payable Oct. 7. The company said it will have 105 million common shares outstanding after the split.
Reiterating a buy rating on
analyst Bill Epifanio said investors should snap up shares of Mister Softee on any weakness stemming from Microsoft President Steve Ballmer's
Bond Focus: Bonds Get Another Lift From Stocks
David A. Gaffen
9/24/99 4:45 PM ET
It wasn't an exact repeat of yesterday, but it was close.
Yesterday the bond market rallied after surpassing key technical levels and got a boost from the stock markets' collective collapse in the last hour of trading. Today the bond market held in firm, and then rallied when stocks collapsed -- although equities recovered near the end of the day.
"It's definitely related to fear of further stock market weakness," said Mike McGlone, vice president at
Aubrey G. Lanston
. "We've broken virtually every key support level that existed in the
Lately the 30-year Treasury market was up 18/32 to 102 6/32, knocking the yield down 3 basis points to 5.97%, its lowest yield since Aug. 27.
For a while, profit-taking from yesterday's rally countered asset allocation trades out of the equity market, leaving bonds near unchanged well into the afternoon. But the equity market crumbled in the last hour of trading, and the bond market reaped the spoils.
The equity market's decline is prompting investors to move money from stocks to bonds, according to sources, on worry that stocks will continue to fall off. The Dow lost another 37 points today, after losing more than 200 points yesterday, and it's shed 4.9% this week. Meanwhile, sources said the Treasury futures could be establishing a new range after having surpassed the 114 5/32 to 114 11/32 area on the bond contract yesterday. Futures closed up 30/32 115 12/32 today.
But there's one more aspect to this positive sentiment, beyond the fact that the fourth quarter is generally better for bonds than stocks. Lower stock prices could keep the
at bay longer than expected.
The Fed has said it isn't targeting rallies or selloffs in stocks, unless they're particularly drastic. For one, spending decisions made by consumers are a more direct result of interest-rate fluctuations. However, the Fed is worried about a potentially destabilizing economic event such as an equity market crash. Were this to happen, the Fed would have to respond by lowering rates, in effect making money cheaper, and inviting inflation through increased spending.
"You get stocks much lower and it takes the Fed out of the picture," McGlone said. "It's not exactly what they would have wanted but ... a slow deflation of an asset bubble is kind of what they wouldn't be too upset about."
Until this week, the stock market was ignored in the Treasury market: Dollar/yen, the Fed, expectations of corporate supply and the continued strength in economic data were more important. But the market is assuming the Fed won't raise rates at its next meeting Oct. 5. It's also been a light week for economic data and corporate supply hasn't been as much a burden to the market as originally thought.
Jack Malvey, chief global fixed-income strategist at
, isn't buying it. "I think the rally is going to fizzle," he said. "We've had a very sharply pronounced one-way move, but without a change in the capital markets expectations about the dollar, commodities, and the Fed."
Next week's economic data are no cakewalk either. The week gets going with the August
release Wednesday morning, and that's followed by the
Chicago Purchasing Managers' Index
National Association of Purchasing Management's
survey of nationwide manufacturing conditions is released Friday. Both the NAPM and Chicago PMI could serve as preludes to the Oct. 8
release for September. By then, who knows what kind of mood the market could be in.
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
Monday, September 27 Chat with John J. Edwards III on AOL's MarketTalk Monday Sept. 27 at 3:30 p.m. EDT. MarketTalk is hosted by Sage Online.
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