BUSINESSWEEK ONLINE : JANUARY 25, 1999 ISSUE
READERS REPORT

Cyberstocks, You Are No Microsoft
''Internet stocks: What's their real worth?'' (Cover Story, Dec. 14) draws eerie comparisons with the go-go era of the late 1960s, when stock prices flew way up based upon trendy valuation methods, only to come crashing down even faster later, when economic reality set in.

In the late '60s, go-go stocks were all supposed to be the ''next Xerox.'' Today, every ''Net stock'' is supposed to be the ''next Microsoft.'' However, companies like Amazon.com don't resemble Microsoft--past or present. Amazon.com is a retail outlet with gross margins of about 20%, huge net losses, operating in a highly price-sensitive market (books, CDs, etc.) with a low barrier to entry, and dependent on the cost of goods it can't control. Microsoft, a producer of proprietary goods, has gross margins of over 90% and had healthy profits before it even went public.

The cyber-casino alone has run up these stocks, and most admit they don't know if they will ever be profitable. They are of tremendous benefit to consumers but are poor companies to buy stock in. 1999 will be the year they come crashing down, followed by well-justified shareholder lawsuits (K-Tel International is but the first). Shorting or avoiding these stocks is the best long-term strategy.

Dave Grissom
San Francisco


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