| September -
THE INTERNET BUBBLE PORTFOLIO
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Salt Lake City, Utah 84117
|The Internet Bubble Portfolio|
On December 28, 1998, we formed a small group of internet issues that in our opinion were perfect candidates for disaster. The bubble will burst. Within our July/August Newsletter we added Capital Kirks favorite stock; that is, PRICELINE.COM - Websters definition of Junk surely defines our opinion of PCLN. This month we are adding a new candidate: NET2PHONE (NTOP). Here is why:
NET2PHONE, INC. - low cost telephone calls over the Internet using personal computers or traditional telephones. At present 47.5 million shares outstanding - market cap a staggering $3.86 billion - for the 9 months ending June 30, revenue equalled a tiny $22 million with the usual losses/share of .09 (based upon 30 million shares). The research on the street is calling for expanding losses of .72 for 00.
It does not take an idiot to realize that domestic long-distance has dropped dramatically with respect to per/minutes rates during the past few months!
NET2PHONE actually concentrates on International calling (65%). Well, guess what - those rates have come down even more rapidly; i.e., Kangaroo Land via MCI Worldcom around 6 months ago ($1/minute) now offers a plan @ .25/minute and .09/minute on Sundays.
The point: lots and lots of competition, heavy discounting on all fronts. International calling was the gravy now it appears to be the after dinner antacid!
We assume that NTOP will be a leader within the teleco industry sub group, but will never in a million years retain such a lofty valuation (book around $2). This stock is actually worth a 1/5 mile cab fare ($2). We intend to add this hokus pokus Internet telephone entity to our ever expanding list of Internet bubble stocks for percentage gain performance on the short side! Note: if you really had to own NTOP, the real way to play this stock is to buy IDTC (parent company which still owns around 3/4 shares of NTOP for every IDTC share. At least IDTC is a real company. The street only values NTOP shares at around $15 that IDTC holds. When NTOP was $20, IDTC was $14. Now NTOP is $81 and IDTC $27.
Just goes to show you, most Internet investors only savor the pie-in-the-sky investment theme - the word discounted value - that chapter has not been read yet!
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