The Chart du Jour

Where Are All the Customers' Yachts?

July 10, 2001

By, Barclay T. Leib

Chart produced using Advanced GET End-of-Day

There is no stock that was as central to the 1999-2000 blowoff in equity market valuations than Excite-At Home.

I remember with some angst and incredulousness the period in mid-1999 when CNBC announced day after day that At Home had moved higher yet again. I then investigated with great flabergast and dismay the venture capital firm Kleiner Perkins Caufield & Byers that stood behind At Home and other internet high-flyers courtesy of their clubby "Keiretsu" concept. I then read with even further interest Michael Lewis's The New New Thing: A Silicon Valley Story on Jim Clark's astounding rise to power on the back of Netscape (eventually carved up by At Home and AOL) and Healtheon, since merged with WebMD and now trading 95% below its all time high.

At the time it all seemed like a bad dream to me, and I was shocked and saddened that our regulatory authorities could allow all of these charades to transpire in our valued and venerable equity markets.

Today, what has happened since must seem like a bad dream to those who followed the touts on Wall Street and CNBC. Life savings have been lost in ATHM and other stocks brought to us by Kleiner Perkins. Many law suits have begun against Wall Street firms, and more will follow -- although I have yet to see Kleiner Perkins brought into the legal fray.

And yet, at long last Merill Lynch announced today that they will limit the total number of "buy" recommendations being made by its analysts. Thanks a lot Merrill, but it's a bit late for that. The damage is done, and Merrill's timing for such an announcement could even be taken as an anecdotal signal that a trading bottom should be near -- almost. We say "almost" because in our heart of hearts, we still don't believe that a bottom in the broader equity indices is near. Financial stocks have to be taken out and shot first before the current Armageddon will have a better shot to come up for air.

But then again, how much worse can stocks like At Home get at prices such as $1 and change? At Home is still the world's second largest ISP behind AOL, with a major foothold in the cable business as well. It's just that ATT and Cablevision own too much of it; At Home has liquidity and debt problems that recently forced it to issue a new "death spiral convertible bond" (convertible into more and more shares of stock the lower the stock price goes -- a similar last gasp ploy taken by eToys); and Silicon Valley's New New Thing mantra is certainly long gone.

So it is with some reflection that we toot our own horn a bit and invite readers to re-read our 1999 article "The Man Behind the Curtain and the new Keiretsu: A Closer Look at the Internet Equity Frenzy." It makes for some amazing reading -- particularly given the perspective that the chart above now offers us.

And to the people at Merrill Lynch who so adeptly chose today to issue their "Limited Number of Buy Recommendations" press release, we offer this bit of wisdom from Fred Schwed's famous 1940 retrospective on the boom years of the 1920's:

Once in the dear dead days..., an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said,
"Look, those are the bankers' and brokers' yachts."
"But where are the customers' yachts?" asked the naive visitor."
Might At Home still survive its current abyss and yet provide some customer with a new yacht someday? At a buck and change maybe it's a better statistical bet than a lottery ticket (where the government skims off 60 cents on every dollar). We're even tempted ourselves to take a minor flyer on it -- particularly given its continued market presence as a major ISP and the near complete look of the Fibonacci bands above.

But whatever happens to ATHM, one thing is for sure: Those partners at Kleiner Perkins are already mighty rich and probably don't care much about ATHM any more -- save trying to avoid any lawsuits. This was American capitalism at its ugliest.

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