The don’t-buy-into-frenzies formula applies even to companies that have done well, like Netscape and Yahoo! If you bought Netscape at its opening-day high of $37.50 (adjusted for stock splits) in 1995, you’re still underwater. Ditto for Yahoo!, which traded as high as $43 on its first day as a public company last year. If you waited out the frenzy, you could have bought Netscape in the 20s and Yahoo! in the teens.
Talking about going public too early, consider @Home, another Internet issue that’s filed to sell shares to the masses. @Home, pronounced “at home,” offers high-speed Internet service to homes and businesses via cable-TV wires. You buy the service through your cable operator, assuming the operator has upgraded its system enough to make this work. The $7-a-share asking price values the company at more than $800 million. This for an outfit that has only about 5,000 customers and revenues of $806,000 in its most recent quarter. @Home is building a parallel Internet that it has to stock with content. That will take God only knows how much time and money. If @Home flies, the biggest winner will be TeleCommunications Inc., which owns 43 percent of it. (Most of the rest is owned by cable companies and venture-capital investors.) At $7, TCI’s $23 million investment would be worth about $325 million.
The bottom line: don’t chase hot Internet stocks. It may feel good to pay the going price to buy into a hot company you think will change the world. But if you want to make money, you’ll do lots better by waiting for the frenzy to subside.
Clarification: I wrote recently that no one is making money on the Internet. That was sloppy. I meant to say that no publicly traded Internet company is making money on operations. Lots of nonpublic Internet businesses - most of which operate in obscurity - are doing just fine.
