Here’s One Guy Unmoved by Internet Issues
Internet companies aren’t a good investment right now and may never be, a Smith Barney Inc. analyst says.
“We have one piece of advice for investors who want to buy pure plays on the Internet: Don’t,” said Jonathan Cohen, who follows special-situations stocks for Smith Barney, at an outlook on Internet stocks sponsored by the firm in New York last week.
Companies that provide Internet access, such as America Online Inc. and Netcom On-Line Communications Services Inc., have been among the market’s highest fliers lately. America Online’s shares have tripled in the last year, and Netcom’s rose 47%.
Cohen said such companies will soon be supplanted by big telephone and cable companies.
Companies such as AT&T; Corp. ultimately will be the ones to profit from the Internet’s glamour and growing popularity, he said, because they have the advantage of well-developed networks and customer bases and the ability to bundle products and services.
Telephone and cable companies have a “reasonable lock on the future of this communications medium, in terms of raw access,” he said. “I would be surprised if five years from now there were any stand-alone Internet providers left.”
Within a few years, he said, “AT&T; will be by and large the largest Internet access provider in the U.S.”
Cohen said that although his outlook is cautious on all publicly traded Internet stocks, he is “more than cautious” regarding Netscape Communications Corp. shares. Since its public offering last August, Netscape shares have more than tripled, rising as high as $85.50 on Dec. 5 from an initial price of $28.
“Netscape is doing deals with some high-visibility companies, some of which will never produce revenue,” Cohen said.
Technologies similar to that of Netscape’s browser software are being included on many Internet products, making it increasingly difficult for Netscape to make money, Cohen said.
As for America Online, Cohen called it “vulnerable.” Over time, he said, consumers will choose to link with the Internet through general access providers rather than through AOL’s proprietary service.
