SAN FRANCISCO -- You'd never confuse the bespectacled NationsBanc Montgomery Internet analyst Steven Horen for Stephanie Seymour. His name, however, is becoming synonymous with models -- though these models are of the lusty Internet-finance variety. And his early-morning Tuesday presentation, called "Internet Business Models: Granite or Vapor," was packed like a Victoria's Secret fashion show.
Horen essentially argued that the most important metric of Web companies should be how successfully they convert their audience reach to revenue -- and, eventually, to profit (ooh, there's a word that makes Net execs shake in their
). Horen showed slides comparing Net companies: ratios of revenue to reach, gross profit to reach, revenue per employee and gross profit per employee. All use trailing numbers.
"These aren't really that complicated or that revolutionary," says Horen. "Revenues-to-reach, for example, is a metric used in the radio business. The point is that Net companies have to leverage their users into profit and you can look at these kind of numbers to decide which companies you might buy on dips."
The incredibly strong interest shown here by money managers suggests that the Street is still trying to figure out how to value Internet companies. After such an incredible run this year -- the
TSC Internet Index
is up 24% -- what investment manager can go back to his boss and say, "I sold
before its 800% rise, and I was
Clearly, the money managers at the
NationsBanc Montgomery Tech Week
conference are looking for the means to be right in the future.
They may as well have booed him off the stage.
CFO Kevin McKay raised his voice to keep his audience engaged in what he had to say, investors steadily walked out of the company's presentation when it was only about halfway finished.
During the presentation, McKay tried to stress that SAP has invested heavily in R&D and that new products expected in the second half of 1999 would propel growth in the coming years. He reiterated that the company expects to double its revenue over the next three years and that its new products due later this year would garner about 30% of SAP's total revenue by then.
But fund managers aren't biting.
"I think they're just BS-ing us," said one Bay-area fund manager who asked not to be named. "The whole sector is dead and will be for a while. That's why they keep pushing these new products that they don't even have."
The fund manager said he doesn't own any SAP shares and isn't about to anytime soon. "I think there's more going on than they're saying," he said. "I can't believe that all their problems in the fourth quarter were just because of Japan and Russia. That just doesn't add up."
Is a chip stock that trades at 66 times trailing earnings a bargain? Yes, when its main competition is
, which is going for 166 times earnings. The company in question is
, this year's leading player in fast Ethernet local area network chips. Broadcom is trying to topple Level One from the top post.
Level One is fighting back. At the conference, the company said it will come out this quarter with a gigabit Ethernet transceiver -- possibly the first company to do so -- and a gigabit controller by June. This for a company that has had a five-year compound annual growth in revenue of 59%. It has had 28 successive quarters of profitability and ended 1998 with $263 million in revenue -- a 98% increase from 1997.
Level One was trading at 38 1/8 Tuesday, down 1 1/2.