Waiting Out the Net Potential
America Online's
(AOL)
quarter puts tremendous pressure on the rest of the Net companies, save
Yahoo!
(YHOO)
, because it is, in many ways, a profit machine. You can snicker along with
Tish Williams
in her
critique of the postgame (and I like snickering with Tish, so I don't blame you) but I do hold this truth to be self-evident: AOL's just plain kicking butt.
It has figured out how to make money on the Net, and people like that. We like it because it is more than everybody else -- again, save Yahoo! -- has, and it looks like we are getting late in the patience game for those who haven't.
Join the discussion on
TSC
Message Boards. Let's contrast AOL and Yahoo! with two other Net situations, one which I am long because of the potential, and the other, which I have given up on because of the losses. I am talking about
E*Trade
(EGRP)
and
TheStreet Recommends
Amazon
undefined
.
(Disclosure,
TheStreet.com Inc.
(TSCM)
has a relationship with E*Trade, so you can figure me as bought and paid for. I really don't care if you do. I certainly wouldn't own a stock out of loyalty to anybody. I own a stock because I think it is going to make me money.)
When I sit back and analyze E*Trade's
quarter, I see many, many positive things: market-share gains, lowered acquisition costs, constant volumes, great name recognition, fabulous marketing. Others, though, just see the losses. They don't see the potential gains. In fact, they see the gains pushed out further.
I understand that. That's how I feel about Amazon. The bulls on Amazon see the market-share gains, the profitability in the core book business, unbelievable name recognition and marketing, and they figure, "Give it time." I think, on the other hand, it has had plenty of time and it hasn't done it yet.
This juncture is where AOL and Yahoo! come in. People are selling Amazon and E*Trade because they are saying, "Wait a second. I don't need all of this potential and red ink. I can have potential and black ink with AOL and Yahoo!. I don't need the aggravation."
And after watching the way E*Trade traded yesterday, I have had some of the same thoughts. So why am I patient with E*Trade? Why do I not blow out of it lock, stock and barrel? Because, unlike Amazon, I think these guys are capitalists at heart. I think they want badly to make money and dominate, and they are smart and they will figure it out. I keep thinking this story is down 5, up 50 when they get it right, with down 5 being a cost worth swallowing.
Sometimes the best stories can be the ones no one loves.
Fortunately, as a portfolio manager, I can afford the luxury of waiting. And I have other winners that can subsidize those stocks that aren't doing anything.
But don't get me wrong. I understand those who don't have that luxury or patience -- because I was long Amazon for a long time. And I finally decided that the All Potential Team wasn't worth waiting for.
Random musings:
Speaking of all potential, I salute
AMD
(AMD) - Get Advanced Micro Devices Inc. Report
for getting it
right and finally making shareholders some bucks. ...
IBM
(IBM) - Get International Business Machines Corporation Report
was simply
not bad enough to please the bears, even though there was plenty there that was bad. ... How many times am I going to miss this
Apple
(AAPL) - Get Apple Inc. Report
in this century? Probably as many times as I did last century. ... Couple of must-reads on the site, the
Transmeta piece by
Jim Seymour
and
G.B. Smith's
dialogue. Can't believe how good some of the stuff on this site is. ... Still a lot of futures-selling weighing down on the market these past few days, perhaps giant institutions doing some sort of a hedge that stops them out on gains? Always hard to pin that stuff down. ... The
Cisco
(CSCO) - Get Cisco Systems Inc. Report
raiders, you know, the ones who were trying to do a number on it like
Lucent
(LU) - Get Lufax Holding Ltd American Depositary Shares two of which representing one Report
, got their heads handed to them and I couldn't be happier. ... It will be interesting to see how the journalists at
Time Warner
(TWX)
get along with their new bosses at AOL. In some ways, the Web is a brutal taskmaster because you find out very fast who reads what and who doesn't. Those pieces without a lot of page views tend not to be subsidized for too long by those that have them. And those writers without a lot of page views, they will wish that page views couldn't be counted. But those who have the page views? They will want more money. And if someone doesn't pay them, they will go elsewhere because they have the numbers. Oh brutal world, how much more gentle was
The Harvard Crimson
than Web capitalism?
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long America Online, Yahoo!, E*Trade, Cisco, Advanced Micro Devices and TheStreet.com, and Cramer was long TheStreet.com. 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
jjcletters@thestreet.com.
