Today's Wall Street Journal warns of letdowns in online romance:
"Couples frustrated in cyberspace"
It's an entertaining piece which you can here on ZDNN (Why drive traffic to Dow Jones when we can just keep it ourselves?). On the surface, the story has little to do with investing, but it be more relevant than you think, considering that stock market players are in the midst of reviving their own dangerous romances with Internet stocks. The latest Affair To Remember (for five minutes) revolves around the Rudy Valentino of the Internet, America Online.
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The market remains so infatuated with AOL -- nothing like a price-to-estimated-earnings ratio of 376 to brighten your day -- that stock buyers immediately transfer the love to anything associated with Steve Case's juggernaut. And so we have Drkoop.com Inc. (Nasdaq: KOOP) and Autoweb.com Inc. (Nasdaq: AWEB) rising today, following their respective announcements of deals with AOL.
Love certainly explains such blind investing. Drkoop.com will pay $89 million for a glorified advertising deal, and somehow this creates a market value of $1.2 billion? The company's quarterly revenue hasn't even broken the seven-figure mark yet. It's still the same one-man-brand whose IPO got an initial reception that was relatively sedate, considering it came in the wake of the hype created by Healtheon-WebMD.
Autoweb.com looks no better, having missed first quarter estimates. How can you have confidence in a company that failed to hurdle the low barriers set by its underwriters' analysts? Today's announcement of a two-year marketing deal with AOL is even more nebulous than Drkoop's; at least the latter gets "premiere" billing (whatever that means), while Autoweb merely gets a "presence".
AOL's ability to generate earnings for its content providers hasn't been proven yet. Sportsline USA, for instance, expects to remain profitless through all of next year, despite getting 40 percent of its weekend traffic from AOL. And with only one direct rival (ESPN.com), Sportsline faces a competitive situation much easier than Drkoop.com does.
Of the three stocks rising today on AOL-related news, only one actually makes money: America Online. Look for it to keep building on that, if the New York Times is any guide: the newspaper reports that AOL expects this year's sales to almost double its fiscal 1998 revenues, and looks to double its subscriber base over the next five years. And you have to admire a company that gets paid by its content providers, instead of the other way around.
That kind of savvy and ability to continually boost its customer base has investors seeing a Midas effect in everything that AOL touches. But remember -- only King Midas got to enjoy the gold.
The overall market continued rising in the afternoon. With two hours left in regular trading, the Nasdaq Composite Index was up 34.68 to 2775.70, the S&P 500 had risen 7.17 to 1398.39, and the Dow Jones Industrial Average had gained 45.91 to 11185.15. 22GO>