A Success StoryConsider the case of the online travel industry's Big Three -- Travelocity ( TVLY) ('00), Expedia ( EXPE) ('99) and priceline ( PCLN) ('99). All three are profitable, posting huge stock gains so far this year after spending last year in the doghouse. Many investors missed out on the recent gains because of the stigma associated with the utter collapse of 1999's IPO class. The trio's success doesn't surprise Thomas Weisel Partners online travel analyst Jake Fuller. "Travel is a perfect item to sell on the Web because it's a virtual product," he says. "There's no overhead and no warehouse, and the margin potential is there." The online travel industry seems custom tailored for the Web, but does anything else have potential? On the surface, companies that sell information over the Web seem like good candidates for future success because, like travel agencies, they sell products that do not require inventory and have the potential for solid margins. Those who provide services also seem like a good fit because they, too, sell a virtual product. But those online retailers, a hallmark of 1999's IPO class, they've got work left to do.
- Online content -- While there are no warehouse or shipping issues, costs for office space and supplying a staff add up so quickly for online content providers that you might as well have the big barn. And with the collapse of the online advertising market, revenue streams are looking pretty dry. Salon Media (SALN) ('99) trades at 27 cents a share, off 97% from its IPO date. Nonetheless, a faint glimmer of hope has yet to die. According to Salon, about 12,000 users have signed up for subscriptions since April 25, netting $400,000. (TheStreet.com (TSCM), publisher of this Web site, came public at $19 in May 1999 and shot to $70 in its first day of trading. The stock now trades for about $1.30.)
- Content portals -- With a few notable exceptions, mostly early birds like AOL (AOL) ('92) and Yahoo! (YHOO) ('96), the online portal is dying an ugly death. In a slowdown, the model developed some fatal flaws. Ad sales slumped, while the cut gleaned from retail efforts couldn't keep a college kid stocked with ramen noodles. QuePasa.com ('99), a Spanish-language portal site, is a good example, currently trading at 11 cents a share after pricing at $12.
- Services -- A myriad of companies provide services online, but the question is always the same -- will users pay for the service? In the case of HotJobs.com (HOTJ) ('99), the answer is yes. "It's perfectly suited to the Internet. It takes out a lot of costs in hiring. It's lot quicker for job hunters," says Kathleen Heaney, consumer and new-media analyst at Brean Murray. She credits the subscription model's steady revenue stream as one of the main reasons HotJobs reached profitability in the just-announced second quarter -- ahead of schedule and despite slumping revenue. And the best is yet to come. "They haven't peaked in terms of revenue. They have a long way to go still," Heaney says. "This is where you make your money, by believing early." Make a note -- HotJobs is up 40% since its IPO.