CNET también está disponible en español.

Ir a español

Don't show this again

Tech Industry

THE DAY AHEAD: Will Wall Street&#039s big guns finally credit Go2Net?

Investment firms start coverage of Internet companies all the time and it normally doesn't mean a lot. But PaineWebber's "buy" rating on Go2Net (Nasdaq: GNET) could be a significant development for shareholders.


Analysts -- like journalists -- tend to follow the pack. One big firm starts coverage and others soon follow. Upgrades, downgrades and everything in between come in bunches.

No one wants to be wrong and no one wants to be left behind.

Go2Net: Getting the short-end?

In the case of Go2Net, which mixes community, e-commerce and portal functions, analysts have been late to the story because their firms aren't getting underwriting fees.

Go2Net is ranked 9th according to the July Media Metrix statistics. Go2Net is ranked in the top 10 with the likes of Yahoo! Inc. (Nasdaq: YHOO), America Online (NYSE: AOL) and Lycos Inc. (Nasdaq: LCOS).

But prior to PaineWebber's coverage here was the list of firms covering Go2Net: Black & Co., ING Barings, Needham & Co., Pacific Crest Securities and US Bancorp Piper Jaffray. And three of those firms are relatively new to the Go2Net story. ING started coverage in March, Pacific Crest discovered the stock in January and Needham was on the case in October 1998.

That's handful of fine firms, but they lack the clout of Goldman Sachs, Morgan Stanley Dean Witter or BancBoston Robertson Stephens.

So how can a company with lots of traffic, potential, cash and profits -- yes profits -- not be covered by the big guys? Follow the money.

Go2Net went public on the Nasdaq Small Cap market in 1997 and has been on Nasdaq's national system for a little more than a year. No big IPO means no 7 percent underwriting fee and no flashy analyst coverage.

The end result: A newly public Looksmart (Nasdaq: LOOK) has a market cap of $2.2 billion compared to Go2Net's $1.75 billion. But Looksmart is two pegs behind Go2Net in Media Metrix numbers and has no hopes for profits any time soon.

In a few weeks, LookSmart will get kudos from Goldman Sachs, BancBoston Robertson Stephens and Hambrecht & Quist, the three firms that are underwriters for the LookSmart IPO. The second-generation portal will see its market cap go even higher as "buy" ratings are handed out like candy.

How can you look at LookSmart without seeing Go2Net (chart)? Follow the fees.

The good news is that many investors have caught on to the Go2Net story even if analysts have yet to ditch their underwriting fee blinders.

Here's Go2Net in a nutshell: The company maximized minimal resources, spent zilch on marketing, posted profits and met its 1999 goal of being in the Media Metrix top 10 way ahead of schedule. Go2Net grew traffic through strategic acquisitions such as Silicon Investor, which provided a lot of traffic, cool technology and little overhead. It's growing multiple revenue streams around e-commerce, subscriptions and advertising.

But the big investment houses still may not notice Go2Net because it doesn't need to raise cash through a debt or equity offering. The company has lots of cash from Paul Allen, who plans to incorporate Go2Net with his broadband dreams.

PaineWebber's James Preissler didn't tell us anything new about Go2Net Thursday, but at least he noticed the company. Preissler did project that Go2Net's revenue base will be 80 percent e-commerce in the long run. Maybe some of the larger investment houses will follow PaineWebber's lead.

What's not to like about a resourceful Net company that knows what a profit looks like?

Apparently just the lack of underwriting fees.

An Amazonian task

Building distribution and infrastructure isn't easy and (Nasdaq: AMZN) might see some weakness because Jimmy Wright, the company's logistics guru, is going to retire, according to the Wall Street Journal.

Wright, an alum of Wal-Mart (NYSE: WMT), got things rolling for Amazon and cashed out with a nice retirement fund and a few thousand Amazon shares.

Connecting the dots, investors and the press will leap to the conclusion that Amazon is choking on its expansion plans as it begins to look more like a conventional retailer. Of course it is. On Amazon's second quarter conference call officials said the expansion wouldn't be completely smooth. There are no surprises here.

Warehouses are real work and companies typically screw up a few times before they get it right. Amazon will goof a few times too. But when distribution is flawless a cash cow like Wal-Mart can emerge. But Amazon isn't a Wal-Mart on the back-end just yet. The big variable is investors' patience.