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Today's Magic Word: Internet (April 24, 1998)

There's a new way to gamble on the Internet. And we don't mean by playing Black Jack online.

     Last week, would-be Gordon Geckos threw money at virtually any company that whispered the magic word, "Internet." Getting the most attention was previously down-at-the-bell bottoms K-Tel, whose stock rose from a bargain bin price of 6 and 5/8 two weeks ago to a high of 49 and a half. The hook? K-Tel's announcement that its Web site (www.ktel.com) would start selling CDs online as of May 1.

    Even Net investment counselors were flabbergasted. "People feel they've missed out on the Internet stock," says Alex Schay, a stock analyst with The Motley Fool, an online financial forum for investors. "So they're grabbing at anything."

    Other companies, such as MoviePhone and the Sharper Image have received bump ups in their stock prices that some analysts say is due to the suddenly perceived sales possibilities of the Web. "But then what's an ‘Internet company'?" asks Schay. "Is the Gap an internet company because they have a Web site where you can buy clothes?"

    Companies that are truly betting their futures on the Internet also posted unprecedented gains on the heels of press releases containing the "I" word. Market Guide, a financial reports publisher, rocketed over $15 to a high of $23 (a 188 percent gain) after announcing a deal with America Online. Financial details of the arrangement weren't even released, but investors didn't seem to care.

    Former CD-ROM creator turned Internet tech company 7 th Level also got a single-day shot in the arm going from 1 and ¾ to a high of 11 ¾ after announcing that its animation technology will be used by WaveTop, an Internet broadcast service that will be included in Windows 98. Jeff Croson, 7 th Level's senior VP of sales and marketing was astonished: "We expected [the reaction] to be positive, but we did not expect anything like that. We couldn't believe it." Some investors also seem buoyed by the fact that former high-flying junk bond financier Michael Milken owns over 8 percent of 7 th Level.

    However, most of the sudden bestsellers are already pulling back. But does that mean that today's magic word will become tomorrow's kiss of death? "Some of this doesn't make sense," admits Patrick Keane, an analyst with Jupiter Communications, a New York-based Internet market research firm. "Very few have even turned a profit. Even bookseller Amazon.com hasn't turned a profit."

    Meanwhile, the rare publicly traded Internet companies that have made money are shooting higher. "Yahoo," Keane says, "has a greater valuation than US Steel."

    Even the Motley Fool, which makes its living online, is skeptical. "We're obviously strong proponents of the medium," admits Schay, "but this is just silly."

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