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Analyst Watch: Lycos back on fast track; Oracle rumblings

Back in February, Lycos Inc. (Nasdaq: LCOS) was one of the hottest stocks on Wall Street mainly because everyone wanted to get their hands on an established Internet portal. Now that the USA Networks-Ticketmaster-CitySearch deal has completely unraveled, Lycos may be ready for another huge run-up.

Nothing fuels a stock's growth quite like a company in play and that's exactly what Lycos has become. Again.

Granted, it might not happen for a few months, but you can bet would-be suitors are already lining up to be the next Mr. or Mrs. Lycos.

It really was no surprise that Lycos' $17 billion merger with USA Networks Inc. (Nasdaq: USAI) and its Home Shopping Network and Ticketmaster-CitySearch Inc. (Nasdaq: TMCS) fell apart at the seams. It came off awkward and stilted from the very beginning, not exactly a reassuring sign to investors who can forgive the intricate complexities of the technology itself but not the murky voodoo accounting that permeated this deal.

Alas, both USA Networks and Lycos abandoned the deal, officially, this week. Right on cue, Lycos shares resumed their ascent.

Following the brief postmortem, Jeffries & Co. upgraded the stock from a "hold" to a "buy" while Needham & Co. cut it from a "buy" to a "hold."

"This is good for Lycos in the long-term," said Bruce Smith, an analyst at Jeffries & Co.

For others, the deal's death was simply the beginning of a new race.

"The key thing here is that the uncertainty is lifted," said Daniel King, an analyst at LaSalle Street Securities. "Now there'll be another round of speculation about a new partner."

Back during Hambrecht & Quist's Internet conference/ski junket in early March, Lycos was the biggest story going. Lycos CEO Bob Davis was in full strut, boldly proclaiming the merger a done deal.

"There's no doubt in my mind it will happen," Davis said at the time. "It makes sense."

For a while, the analysts thought it made sense, too. They all lined up in support of the deal even if they didn't really understand the mathematics behind it.

It's hard to blame the analysts for their optimism. It's so early in the Internet/e-commerce/convergence game that every reasonable marriage between an online property and am offline powerhouse can only be viewed as a positive.

But in this case, the numbers simply didn't add up.

CMGi Inc. (Nasdaq: CMGI) CEO David Wetherell understood enough to know his company, which owns 20 percent of Lycos, was getting a raw deal. In retrospect, his resignation from Lycos' board of directors was the crushing blow.

If you're a Lycos shareholder, this can only be viewed as a positive development.

By October, Lycos will be eligible for pooling again, essentially meaning any buyer could pick up Lycos without trashing its earnings for the next few quarters.

And you can bet there'll be plenty of interest.

The usual cast of media suspects, including Time Warner (NYSE: TWX), CBS Corp. (NYSE: CBS) and Fox, will join Amazon.com Inc. (Nasdaq: AMZN) and possibly even America Online Inc. (NYSE: AOL) as possible partners.

Regardless which company wins the war or when the deal happens, Lycos shareholders can expect a larger premium than the one USA Networks offered.

Lycos shares rode the rumor mill to a 52-week high of 145 3/8 in February only to fall to the high-70s after the USA deal was announced. By Friday, the stock was back around 108.

Making matters more interesting, Lycos will report its third-quarter results Tuesday with First Call consensus expecting a loss of 3 cents a share.

BancBoston Robertson Stephens analyst Keith Benjamin said the deal's demise will unlock value in both Lycos and Ticketmaster-CitySearch.

"We expect further focus on Lycos next week when it reports its quarterly results," Benjamin said in a research report. "While the stock has already reacted positively to a partial pre-announcement, including strong traffic growth and securing $200 million in new commerce deals, we believe it can return to its highs."

After this week's flurry of activity, 12 of the 17 analysts following Lycos rate it either a "buy" or "strong buy."

Oracle overreaction?

Oracle Corp. (Nasdaq: ORCL) lost 9 percent of its value Thursday on profit worries ahead of meeting with financial analysts.

On Friday, Oracle rallied up 1 3/8, or 6 percent, to 24 3/8 after nothing substantial came out of the meeting. Despite the trepidation of some Oracle watchers, it didn't offer any further guidance regarding its fourth-quarter results.

And, contrary to some rumors, COO Raymond Lane isn't going anywhere. At least not yet.

First Call consensus expects the database software developer to earn 34 cents a share in the quarter.

"Given that sentiment going into analyst day was so negative, the tone of the meeting was on the margin more positive than we expected," CS First Boston analyst Wendell Laidley said in a research note.

It didn't help that Morgan Stanley Dean Witter lowered its fourth-quarter estimate to 30 cents a share Thursday morning.

This could simply be a case of analysts overreacting to the slowdown in the enterprise resource planning (ERP) market thanks to the Y2K dilemma.

Sixteen of the 29 analysts following the stock still rate it a "buy" or "strong buy."