Author: A.T.

Tom O’Connor: “I’m a student, heading to a career as an ad copywriter. I try to increase my MBA-type knowledge of how business works, and I don’t understand the grow-or-die concept as it applies to companies. Sure, it makes sense for publicly traded ones that have to satisfy analysts’ desire for earnings growth, but beyond that, why? If I’m turning a profit, why does it matter whether or not I’m growing?”

If you’re not growing when the population is, I guess you’re sort of shrinking.

And if you’re not growing, then you’re:

1. taking all the profits out of the business instead of reinvesting them (in which case you’re probably not keeping up with the competition in terms of new equipment and/or better ways of doing things); or else . . .

2. reinvesting your profits at zero return (which doesn’t bode terribly well, either).

And if you’re not growing, it’s not too interesting or exciting for the sales team and management, so you’re not likely to attract or keep the young, bright go-getters – but your competition will. And those hungry go-getters will work hard and smart to win your customers over to the competition.

All that said, I’m sure there’s a place for the charming little guest house that has its fiercely loyal repeat clientele; that never expands; that never raises its rates, except perhaps to match inflation; and that provides a lovely living for the people who run it. But, with exceptions, there’s certainly something to the maxim.

Three unrelated items:

1. Recently, I mentioned dealcatcher.com. Here are two more sites for free stuff and promo deals: thefreesite.com and deal-finder.com.

2. A week earlier, I was pointing out the good intentions but limitations of The Hunger Site. Here’s a good idea from Christopher Frizzelle: “If The Hunger Site puts a link to Amazon.com somewhere on its webpage, it can earn 5% of the total Amazon purchase that the customer made on account of the click-through. Chances are, the average Amazon shopper spends more than $10.00 at Amazon’s site — not to mention if any number of those shoppers know that a portion of their purchase is going toward battling third-world starvation — and $10.00 on this arrangement means two quarters instead of one nickel will go to hungry kids. That’s ten times more money for food.”

So keep the banner ads and the nickels, but get Amazon shoppers into the habit of accessing Amazon through The Hunger Site. Smart, Christopher. (John: What do you think?)

Alan Levit: “I’ve got a DSL connection and three computers. I didn’t read your first column on Hungersite, and now I guess I’m glad I didn’t. I’ve been merrily clicking along on two computers every morning, with my eight-year-old clicking on the third (Hungersite is bookmarked on all three). I never would have considered these nickels to be our family’s share of our just contribution to the poor, but our 15 cents a day, and everyone else’s, does seem to add up. I’ll happily keep clicking next year.”

3. Last March, Howard Ruff told his newsletter subscribers: “THE WORLD IS A BUBBLE AND Y2K IS A PIN.”

Mmmmm . . . no.

Rick Boyd: “Now that the big date has passed with remarkably few problems, I was wondering: What preparations did you make for Y2K difficulties?”

Well, a while back, I bought a generator, but largely for thunderstorm and hurricane power outages. I also bought a ton of canned/bottled food and drink, Stern-o, candles, etc. – maybe $1,500 worth. But it was in bulk on sale, and will all or mostly come in handy. So all that was “lost” was the interest on the money for a few months, as I eat down my inventory. Finally, I had more cash on hand than I usually would.

But, as with most people, my anxiety over this lessened markedly in recent months. It seems that a lot of people did their jobs well, and we owe them a round of applause.

That said, it’s always good to be prepared for an emergency, especially the unadvertised, unexpected kind. We’re all better off, individually and as communities, if we have a couple of weeks’ essentials on hand, and a way to stay warm and see in the dark, just in case.

Patient sitting on examining table, in gown, being given his doctor’s diagnosis: “Unfortunately,” says the doctor, “you have what we call ‘no insurance.’” — New Yorker cartoon, by Michael Maslin

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Brian A.: “You wrote: ‘Right now [with the stock at $475], Yahoo is valued at significantly more than Ford and General Motors, combined.’ This is probably more a matter of low investor expectations of Ford and General Motors than excessive expectations of Yahoo.”

Really? You don’t see any problem with Yahoo earning $10 billion-a-year after taxes in a few years? That’s a third more than General Electric made this past year, and General Electric is one of the most profitable companies in the world. It’s nearly half again as much as Exxon/Mobil earned last year, and Exxon/Mobil is not a small or unprofitsable enterprise. A surprising number of Internet users buy drive cars and buy gas. Yet $10 billion in after-tax earnings is what it would take for Yahoo to be selling at “12 or 13 times earnings,” at its recent $475 a share price.

(Since last week’s column, Yahoo is down 100 points, but it’s still valued at more than twice General Motors — and could easily bounce back up another 100 points or another 1000 points – why not? At least that seems to be the attitude of some of today’s more optimistic investors.)

The math could hardly be simpler: At nearly $475 a share, and more than 263 million shares outstanding, the company was valued at $125 billion (today, a paltry $96 billion). And $125 billion is 12 or 13 times $10 billion. So with a market capitalization of $125 billion and earnings of $10 billion, the company would be valued at 12 or 13 times its earnings.

Now, you may say, “12 or 13 times earnings – for a hot growth stock like Yahoo? Are you crazy?” But I would submit that once it’s earning $10 billion a year after tax, it would be so large it might not be such a hot growth stock.

And in any event, in the meantime, there’s the small matter of getting from its current after-tax earnings — $16 million in the last 9 months — up to $10 billion.

It’s possible, of course, but how many companies today earn $10 billion a year in profit after tax? It’s really not an easy thing to do. Even Microsoft, with its near-monopoly on operating systems and office-suite software around the world hasn’t reported earnings quite that high.

I am a fan of both Yahoo and Microsoft, but there’s a difference. Though I use Yahoo every day, I’ve never paid them a dime and don’t plan to. Nor do I pay attention to any of the banner ads. They’re a lot easier to ignore than TV commercials. And if they ever did become hard to ignore, I’d just stop using Yahoo.

I use Microsoft products every day, too. (And, currently, at least, could not possibly stop.) The difference is that, between the licensing fees built into the cost of my computers plus the software I’ve purchased directly, I’ve paid Microsoft lots of money. And they’ve got hundreds of millions of customers. And still they are only now barely getting into the $10 billion-a-year profit range.

What if Pokemon or Harry Potter puts up a portal, and half Yahoo’s visitors start using that?

So give me a break.

Yes, if everything goes right, as it may, these terrific folks at Yahoo (and they are terrific) may one day, conceivably, build a company worth as much as Ford. Or even Ford plus General Motors plus Dow Jones plus the New York Times Company plus a billion or two in spare change,. That’s how Yahoo was valued for a moment on January 4, when the market-makers temporarily bumped it up to 500-1/8 in order to activate the stop-loss orders that short-sellers had entered at 500. (Or so a cynic might surmise.)

It is conceivable.

But why would anyone possibly pay that much for it today? Or even anywhere even vaguely close?

I saw Lou Dobbs on the “Today Show,” and I like Lou Dobbs, but he was giving really dumb advice, if you ask me. He was asked whether someone with $2,500 should go into the market at these prices (it was actually January 4, I think, that he was on the show) — and whether they should go into the high-flying tech stocks — and he said yes (no!) but that they should get professional advice because this is not a field that is easy for the amateur to dope out.

Well, I ask you: What kind of professional advice is a client with $2,500 going to get? And what will it cost him? If it costs even just $100, that’s 4% right there. And what will that advice be worth? A great many professionals had “buy” recommendations on Yahoo when it was selling for more than Ford, GM, Dow Jones and the New York Times Company combined.

So this is all really a little silly, even though the Internet itself is very real, and my cell phone is magic, and Yahoo is terrific, and the future is so exciting I sometimes want to burst.

For now, I’ll stay short a little Yahoo, a little Amazon, and long the kinds of stocks nobody with any sense of fashion could possibly want.

Monday: Free Stuff, Hunger, and Y2K.

This is really getting exciting. Yahoo was up $42 yesterday, to $475 a share – its market cap is now $125 billion. If it quadruples again this year and next, it will be the first $2 trillion company. (So far, the world’s highest market cap goes to Microsoft, at around $600 billion.) Yahoo earned a solid 25 cents a share in the most recent 12 months, so who says earnings are the kiss of death for an Internet company?

Needless to say, paying $475 for an annual earnings stream of, most recently, 25 cents, seems high. Would you give me $475 if I promised to give you 25 cents a year? Would you liquidate all your assets and give me $475,000 if I promised to give you $250 a year?

But it’s not the 25 cents that has people excited. Obviously.

First Union analyst Carolyn Luther Trabuco rates the stock a strong buy at $475 – it’s cheap here! – because, according to CBS/Marketwatch, she thinks it should hit $600 in the next 12 months. What has her excited is her expectation that revenues for this past quarter will come in at $190 million. And she has upped her earnings-per-share forecast by a full penny, to 16 cents for the quarter just ended from the 15 cents she had previously anticipated. Multiply those quarterly sales and earnings expectations by four, and you have the company now selling for 164 times annual sales and 742 times annual earnings.

But of course the point is that Yahoo sales and earnings will keep growing. Otherwise, why would you pay $475 for a claim on 16 cents in quarterly earnings? You could get $8 a quarter right now from a federally-insured bank certificate of deposit.

(For those slow at math: $8 is a larger amount of money than 16 cents.)

Seriously. Let’s say you earn $20 an hour after tax. In about 25 hours, you would earn enough to buy one share of Yahoo. You could take $475, after tax, in cash, for your hard work. Or you could choose, instead, your claim on an expected 16 cents in Yahoo quarterly earnings. (Not that you would actually get the earnings, in spendable cash. But theoretically they would be yours.)

Which do you want in return for all that work? An immediate $475 in cash, or a likely 16 cents this quarter and maybe 30 cents next quarter and – who knows? – maybe lots, lots more one day?

Right now, Yahoo is valued at significantly more than Ford and General Motors, combined. Toss in Dow Jones (which owns, among other things, the Wall Street Journal) . . . and Yahoo is still considered the greater prize. Only when you toss in the New York Times Company, too, does the market consider the two baskets – Basket A, containing Yahoo, and Basket B, containing Ford, GM, Dow Jones and the New York Times Company – about equal in value.

Carolyn Luther Trabuco thinks this is ridiculous. Within a year, she thinks, Yahoo will have added another 26% in market value, leaving Basket B in the dirt.

And the way things are going, I wouldn’t be surprised.

Whew!

Proving yet again that it’s dumb to underestimate the ability of “the powers that be” to deal with known problems, even big ones; and that the real problems are the ones that come out of left field.

(The date at top left initially read “Monday, January 3, 3900,” but it was remarkably easy for my eagle-eyed webmaster to spot and fix, before any of you awoke to see it, clap palms to foreheads, and imagine you had overslept by 1900 years.)

I say again, as I did at the end of the last millennium: Happy New Year. (And, yes, to all of you who wrote: we know that, technically, this isn’t really the start of the new millennium, inasmuch as the first year of the first millennium was One, not Zero. We also know the Eiffel Tower didn’t literally blast off into space; it just appeared to, if you used your imagination. This was good enough for us. You can celebrate the millennium next year, if you like; we’ve had enough.)

As many of you have pointed out to me, there is an easy way to help starving children. It’s called The Hunger Site.

Visit, click, and — at no cost to you — 2-1/2 cups of rice are provided for a hungry child.

I first wrote about the hunger site this summer. I was a bit dismissive, in part because you had the sense you were ferrying a turkey dinner out to some poor kid, when in fact, as I discovered, you were contributing 3 cents to a UN hunger program. Three cents (now a nickel) is not a big deal.

I also noted, back in July, that as well-intentioned as it seemed to be, if 10 million people clicked each day, the guy behind the site would pocket $25 million a year for his trouble. (These were not the numbers I used, but this is how the numbers worked out, based on his 14% commission.) So one could even construe it as a somewhat cynical way to make a fortune.

Since then, the site has done a great job of providing full disclosure — and its founder, John Breen, of Indianapolis, has renounced the 14% commission. The site is now run for free. John says he even absorbs the cost of the server.

What’s more, John is is so modest, his name and face appear nowhere on the site. As best I can tell, he’s not even doing this for the glory (at least not in this life).

So what’s wrong with the Hunger Site? If anything, only this:

At a nickel a day, after a full year of relentless clicking, you have given $18.25. (Well, you haven’t given anything, but the sponsors have, as a result of your clicking.)

The upside: $18.25 has been contributed. Rice has been provided. And it’s made you feel good to help.

The downside: perhaps not doing the math, you may actually feel that, having clicked, you’ve “done your bit.” (If you earn minimum wage or are nine years old, you have!). Hunger site devotees may feel, when asked to contribute to one good cause or another, including hunger causes, that, heck, they’ve been religious about helping the hungry every day all year — they’ve even turned other people on to this great site — and that’s enough. They “gave at the office,” as the line used to go.

But c’mon. It’s a nickel.

I’m not saying you shouldn’t go click. If it takes you 3 seconds, you are “earning” $60 an hour for the cause. If it takes you half a minute to pull up the site, glance at the ads, click, think about your good deed, and get back to what you were doing — $6 an hour.

Either way, a nickel.

“What is that nickel really worth?” John Breen muses. “If you live in an industrialized country, it is barely worth picking up off the ground. If you live in India and are watching your child die in front of you from hunger, that nickel — which buys two cups and a half of food at the Hunger Site — is worth everything in the world.”

Beyond that, John seems, from our limited e-correspondence, to be such a bright, modest, thoroughly well-intentioned man that he may find ways to leverage the good will.

• Perhaps he will link to the several new sites, like helping.org, that make it easy to give lots more than a nickel. Helping.org, which recently received a rave from the Wall Street Journal‘s estimable Walt Mossberg, is a nonprofit set up by the AOL Foundation. It helps you donate money — or volunteer. Check it out.

• Or if clickles ever materialize, as I’ve long been hoping they will, perhaps The Hunger Site will make it easy to double-click — once for the sponsor’s nickel and once, say, to kick in your own 25 cents or half dollar.

In the meantime, though, a nickel is still just a nickel, and your time must be worth something, so don’t spend too much of it thinking what a wonderful thing you’ve done by clicking on the Hunger Site.

Yesterday, I worried that it’s going to be tough for most Internet firms to make profits. And that one day, this could lead the stock market to tank, touching off a vicious cycle of gloom and depressed sales and lay-offs and bankruptcies, leading to even more gloom and even lower stock prices.

(When it begins to hit bottom — when GREED begins to peek out amidst the rubble, but FEAR still clearly holds the upper hand — that would be a good time for a big tax cut. Not now, when the economy is booming.)

I’m absolutely not predicting this will happen. But anyone who believes that it can’t is . . . young.

So let’s take a moment to talk about priceline.com, a fabulously successful (though money-losing) company whose stock is actually down two-thirds from its $165 high this year. At $55 recently, the market still values Priceline at $8 billion. Is it a bargain?

You probably know Priceline from the cheap airline tickets and hotel rooms it can get you. Back to them in a minute. First: free food.

Jack Moubayed: “When I first heard about Priceline moving into the grocery scene, I thought ‘just another wannabe dot-com.’ However, last week, at the super market check out, I was handed a Priceline coupon, so I went home and logged onto their website (webhouse.priceline.com) and tried it out. I was so impressed with the savings that I e-mailed them congratulating them for this wonderful idea. Here’s how it works:

1. Buy your groceries as if you are buying anything online.
2. Pay for the groceries with your credit/debit card online.
3. Print out the shopping list provided by Priceline
4. Go to the nearest participating supermarket (D’Agostino, The Food Emporium, Foodtown, Grand Union, Gristede’s, King Kullen, Pathmark (only in Westchester), ShopRite, Stop & Shop, Super Foodmart, Waldbaum’s) and fill your shopping cart with the items on your Priceline shopping list.
5. Go to check out, swipe your Priceline card (not your credit/debit card), and you’re done! You already paid for the items online.

“I would like to mention here that I paid $27.24 online for my Priceline items and at the supermarket checkout, the receipt read $71.45. [The receipt read $71.45, but Jack never gave the supermarket a penny. His payment of $27.24 had been made, to Priceline, on-line.] That’s $44.21 savings on every supermarket trip.”

Wait. If Millionaire Mike’s experience is any guide, it’s even better than that. (Mike is not his real name, but he is a millionaire.)

“It is unbelievable,” Mike told me, back from the store for the third time this day. “You go in with your list — which you don’t actually have to have, but you bring it to remind you — and you put the things you picked in your cart. You can also put in some other things you want to buy that you hadn’t thought of . . . and if the store doesn’t have exactly what you wanted, or the size you wanted, you can put in a different size or brand.”

“Oh,” I chirped. “So the cash register is smart enough to add the extra stuff to your order and charge you for it separately?”

“NO!” said Millionaire Mike, giddy. “It rings up whatever you bought, and you walk out with a receipt and the stuff you picked off the shelves. But you don’t pay the supermarket anything.”

“Oh,” I said. “So the extra stuff and the changes are added to what Priceline already charged your credit card?”

“NO!” said Millionaire Mike. “You only pay what you paid on line. Don’t you see? No one at the store checks what you walk out with against the list of what you paid for!”

“Oh,” I said. “You mean you just stole a lot of extra stuff.”

Millionaire Mike paused (basically an honest guy).

“Yes,” he said. “And no one even checks! It is unbelievable!”

And so it is.

Even if Millionaire Mike is wrong, and he somehow finds the extra purchases on his Visa card after all, the prices are, according to Jack (who stole nothing), unbelievable.

For now.

But this is a dot.com model that seems loopiest of all.

The airline and hotel stuff I understand. If an airplane seat is empty, the revenue it could have generated is lost forever. If it’s filled, it costs the airline an extra $10 in fuel and peanuts. Anything beyond that is profit. Much the same with hotel rooms (substitute soap and shampoo for peanuts). So priceline.com’s model can work there: If you would not otherwise have flown, and it sells you the $500 ticket for $180, everybody wins. The airline makes $170 it would not have made otherwise, which it can split with priceline.com; the economy is more efficient because fewer seats go empty.

Likewise with the dot-com models that cut out the middleman. One day, books will be delivered straight from the publisher (and in some cases, straight from the author) to your computer. That saves paper, printing, binding, shipping, warehousing, retailing, and your trip to the store. So there’s another model where there’s room to cut prices and everybody wins. The economy is more efficient because it costs far, far less to get a book from the author’s brain to your eyeballs.

But groceries?

I will eagerly buy groceries on-line for the convenience of it, if they’re delivered. I’m happy to pay for that. But where would the economic savings come from? Nothing about the process Jack and Millionaire Mike describe is more efficient. The products cost the same to make and package and ship and warehouse and stock and check out.

So is Heinz suddenly going to accept half-price for its ketchup? Maybe for a week, but permanently? Is Safeway going to start losing billions of dollars by destroying their relatively modest margins?

I can see how, long-term, conceivably, 5% or 10% could be squeezed out of profit margins and marketing budgets to somehow pass on that much saving — maybe. (Actually, I can’t see it, but let’s assume it.) But will Millionaire Mike take the time to go on-line and shop this way, then go to the market and do a treasure hunt, all to save 10%?

It certainly makes sense to take your free money while it’s being offered. But how long can this last? How will Priceline make huge profits from Jack’s $27.24 purchase in order to justify its still-huge stock price? Surely Priceline will have to pay the store something for Jack’s ketchup, and the store will have to pay Heinz something.

When you cut the bill from $71.45 to $27.24, how does that leave room for Heinz, Safeway, and Priceline all to make money?

Which brings us back to the larger question, of Internet profits and stock prices, not just Priceline’s.

Microsoft is a hugely profitable company because, for all practical purposes, it has a monopoly. Everybody runs Windows. Nobody even knows or much cares what it costs. But how is Amazon going to make huge profits? You can buy what it sells anywhere. Price competition is fierce. Yes, it does a great job. And yes, it may even make a profit one day. But huge profits? Tell me again why it’s currently worth more than twice as much as Federal Express?

And the same for the hundreds of dot.coms that plan to make a fortune selling advertising. Everyone plans to make a fortune selling advertising. The competition to sell advertising is likely to get fiercer and fiercer. Can the prices stay high? Can everybody win?

I sure hope so.

Tomorrow: Free Food of a Different Kind