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DECEMBER 16, 2004
By Timothy J. Mullaney Net Highfliers That Inspire Vertigo [Page 2 of 2] #2. Jupitermedia. Jupitermedia (JUPM ) will likely go as far as its digital-imaging business will take it, says Piper Jaffray Web analyst Aaron Kessler, who rates Jupitermedia outperform. It mostly sells pictures over the Net to clients such as ad agencies. Piper puts the stock's target price at $21. This leaves scant room for people coming in at $20.06 (the Dec. 15 closing price) to make much money, after a 362% gain this year. Next year, Kessler figures, the imaging business will deliver 75% of Jupiter's revenue growth, while revenue from its network of community Web sites for the technology industry will provide just 13%. Most of the rest should come from its Jupiter Research unit, a market analyst and forecaster for the emerging online sectors, and from related conference businesses. In all, Wall Street says profits will jump 33%, to 64 cents a share, or about $20 million. That puts the price-earnings ratio around 31 or 32 -- higher than the market, but not too scary. It isn't that anything is hugely wrong with Jupitermedia: There's just nothing hugely exciting about it. It's hard to imagine a picture agency driving years of growth and becoming a major company. That has to be on the table, at least, to be among the 20 most interesting Net companies. #3. Overstock.com. When Overstock went public in 2002, Wall Street ignored it -- but no more. This year, it surged 272%, to $73 per share, even though Overstock was losing money as late as the third quarter. That will soon change. Analysts expect Overstock to make 6 cents per share in the fourth quarter and 37 cents per share, about $7.5 million, in 2005. That puts the shares at nearly 200 times next year's profits. By contrast, Amazon.com's (AMZN ) p-e is 34. Share prices surged late in the year because Salt Lake City-based Overstock reported fatter third-quarter gross margins. Instead of 10% to 11% margins, as it did before, Overstock reported making 13%. It expects to boost that number to 15%. Plus, Kessler think sales will go to nearly $800 million next year, from just under $500 million in 2004. IFFY PROJECTIONS. It's a good story, and the shares deserved to trade higher this year, as the fast sales growth and progress toward profitability became clear. Consider that companies like Yahoo and Amazon were very expensive when they first turned profitable -- or, in Yahoo's case, returned to profitability -- but continued their climb. So Overstock's lofty p-e isn't an automatic disqualifier. I'm going to see the fourth-quarter sales report before deciding whether Overstock should bump a slower-growing company from the BW Web 20 in February. Here's the danger signal, however: To justify the valuation, analysts such as Legg Mason's Scott Devitt are using multiples of earnings they project for as late as 2008. Of 2004's initial public offerings, which were excluded from our top-performers' list because they didn't trade for the full year, the two biggest gainers the Web 20 missed were both from China: Wireless video-game provider Shanda Interactive (SNDA ). Its shares rose 261% after its May IPO, and 51job (JOBS ), a kind of Asian version of Monster.com (MNST ), which is up 249% since its September debut. WILL HISTORY REPEAT? Shanda still looks fairly cheap, at 30 times next year's estimates, and even 51job, with a 78 p-e, is plausible. Investors with a taste for risk may want to take a look. The bottom line: Some of these big gains will last, and others won't. This has been the story ever since the Net began to rebound. It's up to you. Are this year's stars the next Yahoos? Or will they travel the path of companies that had big gains but couldn't sustain them, like real estate site Homestore.com (HOMS ) or video-rental service Netflix (NFLX )? Tough questions.
 With Susan Zegel in New York Mullaney is E-Business editor for BusinessWeek in New York Edited by Jim Kerstetter
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