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Strategies & Market Trends : Buffettology

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To: James Clarke who wrote (1702)7/24/1999 1:05:00 PM
From: LauA  Read Replies (1) of 4656
 
Mike and James, your present value thinking appears to be much more profitable than my speculations on the future. When I posed the question to the GEICO porfolio investment guys about how they determine if a company with high ROE will return value to the shareholder in the future via higher stock price, they recommended such a look to the past, and present.

In Fry's yesterday a salesman was laughing at customers who buy iMacs, but he admitted that they buy them. He told of a graphics designer who bought one recently, and then had to upgrade it so much that it cost the same as a G3. He said consumers are buying them as decorator items - what color goes with other things in the room? Blueberry, grape, and tangerine sell. Strawberry doesn't. So Mike's observations on pricing of the iBook trump my thoughts that it is an iBrick (because of weight) and that its announcement has a quality of 'vapor' because volume shipments will begin after the back to school buying has ended.

At Fry's the salesman said that customers are buying iMacs to get on the iNet - he said that's about all it does well. Meanwhile eMachines in Fry's is being given away - Free with a sign up for 3 years of ISP at $22/month. Of course next week Alta Vista will be offering a Free ISP.

Which brings up new complications in valuation of the net. AOL has bankrolled eMachines which is currently the 4th largest producer of PC's. (Is Apple in the top 10?) They bundle an eMachine with Compuserve (an AOL ISP). But with Free ISP's around, how long will the conventional AOL, Earthlink, Mindspring model survive? The Free ISP will sport targeted ads. They catalog every URL that's visited and construct a profile for each user (who's anonymously, but uniquely identified by his/her log in password. The business model will approach commercial radio and TV with the fillup of allowing impulse buying.

Hence a Disney needs to be there. Their choice is to buy or build. It's hard to know how to value a current iNet player, but you must recognize that it's not all that easy to find worker bees to build a new company. Paradigms seem to be shifting every 6 - 12 weeks, but most of the real estate has been staked out already. Passive branding may get more valuable as stores become places you shop, and the 'Net becomes the place you buy. On the other hand, if your on-ramp guides you to a certain universe of names, these 'free' ISP's may develop the merchandising power that WalMart has today.

"Hi Ho, Hi Ho, it's off to thunk, I go"

Lau
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