[b]Internet Capital could be worth substantially less than its current $48 billion by midsummer.[/b] - 500 Beiträge pro Seite

[investor_007]

By: Thurston_HoweII
Reply To: None
Thursday, 13 Jan 2000 at 12:38 AM EST
Post # of 54310


OT skibear, try Ipolockup.com, Here is the Barrons Article on ICGE:

The new math behind Internet Capital`s stock price is fearsome

By Andrew Bary


In the five months since its initial public offering, Internet Capital Group has ridden the craze for
business-to-business e-commerce to become the third-largest Internet company in the stock market, with a market
value of $48 billion, trailing only America Online and Yahoo. Internet Capital, a holding company that owns stakes in
47 business-to-business `Net outfits, amounts to a publicly traded online venture-capital company. Its market
capitalization is roughly the size of that of Amazon.com and eBay combined, and is bigger than those of many Old
Economy companies, including Gillette, Boeing and General Motors.

Since going public at a split-adjusted price of $6 a share on August 5, 1999, Internet Capital has soared to 174, after
trading as high as 212 just before Christmas. The stock is up sharply since mid-December, when the company
raised over $1 billion in the largest financing ever for a `Net company. It sold six million common shares at $108 and
$475 million of convertible bonds.

Four-year-old Internet Capital, based in Wayne, Pennsylvania, isn`t as well-known as AOL, Yahoo and Amazon, but
it has been embraced by many investors, mostly individuals, who want a pure play on the potentially monstrous
business-to-business Internet market, which bullish forecasters have said could ring up $1.3 trillion in U.S. sales in
2003, versus just $43 billion in 1998.

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But even the company`s Wall Street fans admit that Internet Capital trades at a huge premium -- 1,100% -- to the
current value of its investments, which consist primarily of stakes in Internet market makers serving a range of
industries, including plastics, paper and chemicals. Nearly all the company`s investments are still private.

Skeptics are far less charitable, maintaining that the company epitomizes the absurdity of Internet valuations and
that its stock could collapse if the current business-to-business (B2B) mania ever cools, or if many of Internet
Capital`s investments sour.

"The odds that a few of their investments may return 1,000% or more are pretty good, but not all of them," says
David Simons, managing director of Digital Video Investments in New York. "Look at the customer service and
shipping problems that are plaguing e-tailers. The same intrusion of reality will dawn on investors regarding the B2B
companies."

For a company with a $48 billion market value, Internet Capital`s actual investments are astonishingly small. Through
the middle of December, the firm had put $331 million into what it calls "partner" companies. The individual
investments have often been quite modest -- about $7 million, on average -- to buy stakes averaging about 30%.

And even if each investment rises a stunning 100-fold, the value of the company`s investments would total around
$33 billion (100 times $331 million), or $120 a share, appreciably below the current market price. This very generous
calculation doesn`t even factor in corporate taxes that likely would be due on the monetization of any investment.

Internet Capital has scored some coups so far, most notably a $14 million investment in VerticalNet that`s now worth
$1.8 billion, based on VerticalNet`s soaring stock price. But the company is going to need dozens of these
successes to justify its stock price

Most of Internet Capital`s investments were made in 1998 and `99. In fact, about half of the $331 million has been put
to work since last September 30. And the majority of Internet Capital`s partners are early-stage companies with
minimal revenues. Some amount to little more than start-ups. Internet Capital`s operating revenues in the first nine
months of 1999 were $15 million.

The company`s valuation, of course, reflects optimism about the B2B market and confidence in the company`s
management, led by co-founders Walter Buckley, 39, and Ken Fox, 29. The pair are each worth close to $2 billion,
based on their equity stakes. Bulls bet that Internet Capital will continue to make lucrative B2B investments with its
current $1 billion-plus war chest.

In an interview Friday, Fox and Buckley characterized their company as the "General Electric" of the sector. Fox said
the company already owns stakes in B2B marketmakers in 26 major global industries and is targeting many of the
remaining 24 large industry groups. "We think the B2B wave will be the largest wave ever in technology," Buckley
said.

But there is plenty of competition to make B2B investments. CMGI, the best-known Internet holding company that
owns a big stake in Lycos, is turning its attention to the B2B market, as is much of the Silicon Valley venture-capital
community.

Internet Capital`s Wall Street fans are led by Henry Blodget, Merrill Lynch`s Internet analyst, who wrote recently that
the company "is quickly establishing itself as the leading land baron" in the B2B market. Internet Capital, it should be
noted, is Merrill Lynch`s biggest Internet underwriting client by a wide margin.

Table: Internet Behemoth

Blodget`s analysis values Internet Capital`s assets at about $15 a share, or $4 billion. Blodget has acknowledged that
Internet Capital "isn`t inexpensive" but he remains bullish because of the strong outlook for B2B companies and the
prospect of investment dollars shifting into the sector. Internet Capital is the biggest and most liquid B2B play.

Fair enough. But Internet Capital trades at 11 times its estimated asset value, while CMGI, the other big `Net holding
company, trades at less than three times its estimated asset value

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In a recent report, Blodget argues that his asset-value calculation for Internet Capital is conservative because it
values the company`s stakes in B2B outfits that may come public in the next year at their projected offering prices,
not their potentially lofty trading levels after the IPOs. Moreover, he values all the private development-stage
companies at cost, which could be substantially less than their eventual public-market values.

A recent analysis by Goldman Sachs of Internet Capital exemplifies the new math -- and some would say shoddy
nature -- of Internet research these days.

Goldman projects that B2B companies will reach an amazing $2.5 trillion in market value in the next few years, 10
times the size of the current business-to-consumer market and 2.5 times the current size of the entire Internet
sector. Goldman then assumes that Internet Capital Group will command 15%-20% of that $2.5 trillion market, or
around $500 billion. Adjust that $500 billion for Internet Capital`s average ownership stake of 30% in its 47
investments and the company gets valued at $150 billion. A discounted value of that $150 billion produces a current
valuation range of $50-$75 billion, the Goldman analysts say.

Internet Capital bills itself as more than just a passive investor. It aims to provide strategic guidance and customer
support, as well as to foster collaboration among the various companies. Goldman calls this collaborative approach
the "special sauce."

The company has focused on buying stakes in marketmakers in various industries, including chemicals, paper,
plastics and, most recently, steel. Through the Internet, these market makers are aiming to facilitate commerce and
lower costs for traditional businesses. The hope is that the marketmakers will become toll booths, taking a small cut
of each transaction over their networks, much the way eBay takes a slice of transactions on its auction site.

Wall Street so far has been receptive to several Internet B2B marketmakers, including FreeMarkets, Chemdex and
SciQuest, despite their very modest revenues.

David Simons cautions that despite all the hype about B2B possibilities, the upstart market makers may have a
tough time quickly changing established business practices, which may be less inefficient than fans of
business-to-business Internet backers believe.

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Internet Capital also faces stiffer competition from other potential investors in B2B companies as it seeks to make
larger investments. In late December, the company made its largest single investment to date, paying $180 million in
stock and cash for a roughly 35% stake in MetalSite, an e-commerce site focused on the steel industry. The seller
was Weirton Steel, which retained a 20% stake. Internet Capital`s purchase effectively valued Metalsite at roughly
$500 million.

Bulls like Blodget project that MetalSite could eventually be worth $6 billion, valuing Internet Capital`s stake at $2
billion. That estimate, however, could be way too optimistic. Weirton Steel admittedly was a motivated seller
because of its financial troubles, yet it presumably wouldn`t have parted with such a sizable stake in MetalSite if it felt
the business was worth 10 times as much as Internet Capital paid. Indeed, if MetalSite eventually is worth $6 billion,
it would be worth about as much as the entire U.S. steel industry.

Another example of the new Internet math is eMerge Interactive. In November, Internet Capital paid $48 million for a
roughly 30% stake in the firm, which operates an online marketplace for cattle, in a deal that valued eMerge at $160
million. A month later, eMerge filed a registration statement for a public offering that would value the company at
around $400 million -- this despite the fact that the firm`s prospectus suggests that the company got involved in
livestock e-commerce only last year, with the purchase of a couple of Websites, including Cyberstockyard, for a
total of $5 million.

Like many Internet companies, Internet Capital has a limited float (the number of shares in public hands). The float is
less than 15% of the 275 million outstanding shares.

Potential investors ought to be aware that starting in February, a significant amount of stock held by insiders will
become available for sale. Over 46 million shares will become eligible for sale in February, another 45 million from
March through May and an additional 95 million in June. The company said last month that a "significant number of
these shares will be sold when eligible for resale," meaning the market will have to absorb a lot of stock in the next
few months.

Based on the supply overhang and its enormous current valuation, Internet Capital could be worth substantially less
than its current $48 billion by midsummer.

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[investor_007]

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[investor_007]

A rash of SEC filings surprises executives of Wayne`s high-flying Internet firm.
Awash in profits, ICG winners look to cash in

By Miriam Hill
and Patricia Horn

INQUIRER STAFF WRITERS
Pioneering investors in one of last year`s hottest Internet stocks have gotten itchy fingers. Having watched the stock price of Internet Capital Group Inc., of Wayne, jump from the price of a newspaper to $200 before landing at $107.13 on Friday, investors from Center City to Kuwait are cashing in.

Comcast wants to sell one million shares - worth more than $100 million. An Indiana power company already has. Internet Assets, a Kuwaiti investment group, has told the Securities and Exchange Commission it wants to unload 250,000 shares.

And Episcopal Academy in Merion, whose alumni list includes ICG chief executive Walter Buckley 3d, wants to cash in 1,100 shares it received as an anonymous gift - worth close to $120,000.

The pursuit of profit-taking is hardly a stampede. The shares investors have told the SEC they may want to sell represent about 3 percent of the total outstanding shares.

But the burst of activity - coming weeks after the expiration of an agreement requiring the earliest investors to hold onto their shares - has surprised ICG executives, who previously said they did not anticipate any significant sell-off among institutional investors. Many who have filed with the SEC to sell their shares may end up holding them.

In all, 76 individuals and 15 institutions, companies, schools and family partnerships - holding 7.8 million shares - have either sold their shares or are lining up for the harvest.

These earliest investors paid 50 cents or $1 per share. The profits they will reap depend on when they sold or will sell. But if all the shares are sold, the profits would likely be close to $850 million.

"It`s the equivalent of 200 people hitting the Lotto on same day," said Glenn Rieger, president of Cross Atlantic Capital Partners, a Radnor venture capital company. "It`s my personal hope that this will come back to aid the Philadelphia area, whether it be in the form of gifts to charitable organizations or in funding of other young companies."

Like many early investors, Rieger once worked for Safeguard Scientifics Inc., the Wayne venture company that was one of the first investors in ICG.

He plans to plow some of his own ICG winnings back into his new venture fund. "I was going to do the venture fund either way," Rieger said. "This just made it a lot easier."

The potential sale of so many shares has put immense pressure on Internet Capital`s stock. Its shares have fallen 46 percent from their high of $200 on Jan. 3.

A big chunk of ICG`s decline - $12 - came Friday, with news that two of the biggest institutional investors - a unit of Comcast Corp., Comcast Interactive Capital, and General Electric Capital Corp. - filed to sell shares.

Inside investors must give public notice to federal regulators when they plan to sell shares. The filings do not always lead to actual sales, and several of the people who filed to sell ICG shares emphasized that they might not sell.

The Comcast and GE Capital filings surprised ICG executives. ICG`s inside investors had been required by a legal agreement known as a lockup to hold onto their shares for six months after the company`s August initial public offering. Just before that agreement expired in early February, Internet Capital chief Buckley said he had talked to the companies that owned the stock and did not expect them to sell.

Buckley was not available for comment Friday. Sherri Wolf, managing director of ICG`s investor relations, said that many of the announced sales represented a small portion of the seller`s holdings.

Comcast, for example, owns about 24 million ICG shares - about 10 percent of the total outstanding. In all, the company`s shares are worth more than $2 billion.

Comcast felt it needed to diversify its ICG holdings, said treasurer John Alchin: "In the case of ICG, we`re looking at a very significant gain. We`re diversifying a very small piece of the holdings, and much the same way a financial manager would get a little diversification." Alchin wouldn`t say where the money will go.

GE Capital, which filed to sell 200,000 shares, did not return a call seeking comment.

And then there`s IPALCO Enterprises Inc., the parent company of Indianapolis Power & Light and Mid-America Capital Resources. It bought 1,030,600 shares of ICG for $1.2 million. It has sold 1 million shares for more than $100 million.

Some of the biggest corporate holders - Safeguard, AT&T, Ford Motor Co. - are holding on.

The individuals who filed to sell, many of them prominent Philadelphians with connections to Safeguard, Comcast or ICG, were reluctant about discussing their success. Safeguard executive Steve Andriole said he considered the decision personal and declined to discuss why he filed to sell.

"I`m holding more than I`m selling," he said, adding that the filing that said he planned to sell 52,813 shares overstated the amount. "That`s a huge vote of confidence that I would hold more than I would sell. Great company, great stock."

Frank Binswanger 3d, president of the Philadelphia real estate firm that bears his name, did not return a call seeking comment about the 3,500 shares he listed with the SEC. Amy Banse, a Comcast executive who filed to sell 5,000 shares, could not be reached.

Steve Graham, a friend of Buckley`s and managing principal of Graham Partners, a Philadelphia area private equity firm, filed to sell about 100,000 shares. An investment partnership associated with his family, Graham Family Growth Partnership, also filed to sell 1.4 million shares.

"I filed like we would with any security so that we have the alternative to sell when and if it makes sense," Graham said. "ICG has heightened the profile of Philadelphia nationally in terms of private equity and venture capital."

Graham used to work for Robert A. Fox, head of RAF Industries and father of ICG cofounder Ken Fox. Robert Fox glowed with parental pride, even though he filed to sell 25,000 shares, a small portion of what he owns.

"It`s been the great vicarious thrill of my life," said Fox, a Safeguard director.

Two insiders decided to buy - Buckley and Ken Fox.

[investor_007]

Cramer Rewrites `Manifesto for a New Market: Part 2`
By James J. Cramer

4/8/00 3:30 PM ET




Editor`s note: This article is the second in a week-long series titled, "Manifesto for a New Market," which examines how the business of stock-picking has changed, what works now and why. The first piece in the series was first published on Thursday. I love this series. Even though there were other pieces that needed more deciphering, I wanted to take the opportunity to rewrite this piece so everybody understands it. This series is about how the "craft" of money management has become just so much show biz and that I no longer fight that notion. My enemies would say I embrace it. Heck, I don`t care. This is commerce, not religion, and the business I am in is the business of trying to sleep at night and please my partners and keep my employees. That requires me to make a series of calculations, based on anything but what Graham and Dodd and Buffett might have to say.

I was reminded of how bogus our business has become when I read through the excellent Floyd Norris piece in The New York Times about some guy named Quint, who runs the biggest percentage winner among momentum funds. This guy Quint is in a brilliant marketing position. He stakes out the claim of buying the fastest-growing companies, no matter what the price. If those stocks go up, he`s a genius. If they go down, well, what the heck, it sure isn`t Quint`s fault. Blame the darn stars! I read this stuff and I said, Wow, this guy has a sales pitch that is a living dream. He has one hot show on his hands. He`s gamed this business in a way that is simply brilliant. I wish I could do that, but I`m too afraid of losing peoples` money.

I couldn`t live with myself if people came into my fund 40% ago, which also happened to be a few weeks ago. But that just makes me a bad businessman in the New World. This particular part of the series is about how the underwriting market is playing a high-risk, short-term, greedy strategy that might backfire down the road. But in the meantime, holy cow, this is where the action is.


When the book on this era gets printed, we will see a whole chapter about how the brokerage houses figured out a way to front-load the market for pizazz. But we will also read about how the backend produced an edifice built on shifting sand, not granite. (In other words, what the brokerage houses are doing is making an artificial short-term call on the shares of a company in order to generate both a noticeable pop and a successful short-term offering. But longer term, they`re producing companies with exploding supply. When that extra supply hits, it overwhelms demand and takes the stocks and their stockholders apart, generating significant losses for all but those who got in earliest. The underwriters are creating a built-in need to dump stock down the road.)

You know all of those delicious pops we have seen in so many initial public offerings? Those pops are artificial. They are created by stimulating demand well beyond short-term supply. That supply is kept as tight as possible to get people jazzed about a stock.

(Let`s take National Gift Wrap and Web Co., a company with 25 million shares outstanding. That means the company has printed 25 million shares, all of which are held by institutions and individuals. The way the underwriting works these days, of that 25 million shares, only about 5 million shares are offered to the public. This means that from the get-go only 5 million shares actually trade. Most of that stock, usually about 75%, goes to institutions. The rest goes to individuals and friends and family. For the first six months, only those 5 million shares are free to trade.

So, let`s say the stock goes to $25. The "float," which is what trades, is $100 million worth of stock. But what is outstanding, the true number, is 25,000,000 times $25, or $625 million. Now, here`s the tricky part, after six months, some, if not all of that stock, might be free to trade, depending on the terms of the lockup. Here`s where the slight-of-hand comes in, though. A company with only 5 million shares outstanding trades quite differently from a company with 25 million shares outstanding because it`s a lot tougher to find buyers for 25 million shares than for 5 million shares. That`s not Wall Street talking. That`s just common sense. When that supply hits, it always overwhelms demand and the stock plummets.)

In an era where the actual going-public event is the ultimate in publicity, the desire to have a giant pop does produce some economic benefit to the company floating the shares. (What you want is a "nice pop," not so high that the institutions who liked it in the 20s flip out of it, but not so low it`s viewed as a dud. It`s the job of the underwriters to try to price the merchandise to avoid either extreme. A deal that opens at a high and closes much lower is not good. A deal that opens at a high then works its way lower as more supply hits is just downright terrible -- until it reaches a level where that overhang of now unrestricted stock is unwilling to sell.)

A big opening makes those who got stock feel great. It makes those who got teased with some stock buy more to round out their positions. But it creates a false sense of supply and demand because the "float," the stock that is issued, represents no more than the tip of the iceberg. Usually 5% to 10% of the total stock gets issued. The rest gets held back in order to be sure of the success of the deal.

(Wouldn`t it be a better world if an audible could be called and more shares taken out of the holders and added to the pool to diminish the pop? And wouldn`t it be better to have a system that doesn`t double or triple or quadruple the float six months later, forcing people who don`t want to take a beating to sell? I think there is. I think the false tightness of the initial number of shares is bad for the business and should be changed. But the way underwritings get sold is so they`ll make you money. Therefore, any change is unlikely.

I know if you`ve just got started in trading or investing, you`re probably already attuned to the strategy of watching for when a lockup expires so you can get out before the avalanche of supply. But, believe me, until this era, I never paid attention to lockups. I never cared. The ratio of lockup supply to issued supply is so out of whack now that knowing when a lockup expires is the key to making a profitable investment decision. We sold a stock on Friday when we discovered it had a lockup ending next week. Who can possibly live through the pain of venture capitalists dumping their 50-cent shares at $134? And if they didn`t, they`d have to be nuts.)

Just because it is held back, however, doesn`t mean it can`t surface. It is meant to surface at an opportune moment, long after a company has been seasoned and is trading substantially higher from its offering price. (Seasoned means that a regular trading pattern has evolved. Once that pattern is involved, you have a pretty good call on how a stock will trade. Except with these new stocks. The whole trading pattern is worthless; in fact, it`s misleadingly dangerous now that we`re in the year of the secondary, which is another way to distribute stock from the company and insiders.)

Ideally, in this era, the initial public offering serves as no more than a loss leader. The rest of the stock is kept back, to be registered, usually six months after the company comes public. (The underwriters tease you with some stock and hope you`ll stick around when the rest comes out. Ideally, the stock will have moved up so much that it won`t weigh on the company when the shares come off lockup. But, as we saw on Tuesday, lots of these companies just wilted after the secondaries. There was real money lost in some of these deals. You could have got whacked, big time.)

There is only one problem. Many stocks can`t absorb that supply. Let`s take the case of National Gift Wrap and Toy.com, a mythical dot-com that sells toys and gift wrap online. The company comes public with a huge pop and lots of hoopla -- but not much float at all -- in the spring. Right before Christmas, when everybody is excited about its prospects, the real deal, the massive supply from all of the insiders, gets unlocked.

(Sometimes the supply comes in the form of a convertible bond. Don`t be fooled. Arbitrageurs take those bonds and short common stock against them and lock in a return. But that short of common stock is just another form of supply and it can crush the stock. Other times they do a secondary and price it "in the whole," meaning it`s reduced from the last sale. But it still doesn`t hold. Because the stock is not used to the supply and the holders panic. That has been the course of the last few secondaries, and it`s a dangerous and frightening pattern.)

Most people who were in the stock didn`t know that it was artificially high, kept that way because only the tip of the iceberg was showing. Like the Titanic, the shareholder base takes a lethal hit when it brushes up against that giant floating iceberg. It collapses under its own weight when the artificial tightness disappears. (How many people really keep up with these lockups, despite the fact that their ending is much more material to the stock than anything that happens in the business? Yet they aren`t publicized. That`s just wrong. Material information about a company gets disclosed routinely. But the most material information about a stock is the pent-up supply and it should be a major focus of the process.)

We are seeing these icebergs now come every day as one stock after another comes off its lockup and the float gets freed to trade. As many of these selling shareholders have a basis of pennies while the stocks sell for hundreds of dollars, they are insensitive to where they sell it. They are a new, post-IPO shareholder`s worst nightmare. (That`s why Ben Holmes is your best friend with ipoPros.com, which I use to prevent just such a fiasco from developing in my portfolio.)

This whole backend loading of supply is a new thing, something that has changed investing and made us all into traders, as almost no stock can withstand this onslaught of sellers, causing the holders tremendous short-term pain. So, a money manager`s methodology in this new era has become something of an enforced game of chicken. You have to try to get as much stock as possible on the initial public offering but as little as possible when you get to the lockup expiration. In fact, because of the sellers` dynamics you should actually be short the stock ahead of the lockup. (It`s a terrific strategy to bet that a stock will come down on the expiration of a lockup. Or it will be until the lockups are posted and part of the underwriting process or issued as part of a company`s disclosure requirements.)

This process of creating a tight supply is total nirvana short-term and pure hell later. It is something that the older managers refuse to play, but it is the most lucrative portion of a hot market. It is a key tenet in any new money manager`s manifesto for the stock market in the year 2000. (This is the biggest single source of percentage gains for the hottest managers. They play the game well. The older folks don`t even acknowledge it. Who do you want working for you? Unfortunately for the old-timers, you want the managers astute at this key game in your corner.)

[investor_007]

ICGE is trading @ $67 1/4 US

mfg
investor_007