Internet Update
Dateline: 05/28/99
Reader M.L. recently wrote with some concerns about my Canadian Internet Stock Average. "It seems rather unprofessional," he writes, "that you would select the January 1, 1999 date as the starting price for the stocks in the index. I believe you should be using the prices from the day the particular issue was added to your index.
"The returns are fairly misleading. I don't think back in early January, anyone was aware the DIO would become an internet play. They only released their 'internet status' sometime later. If the index started on March 27, 1999, then the prices you use to start your calculations should be also taken from that date. Right now the percentages look nice, but they don't properly reflect the time period at which the index was actually 'active'."
My correspondent makes some good points. Looking at the Average we see that Dion Entertainment, the company he mentions, jumped from $0.19 a share to $3.44 last Friday, an increase of 1710.5%. The huge climb in price didn't start until March after Dion announced plans to introduce Internet Bingo. So this Johnny-Come-Lately to the Internet scene was not an Internet play on January 1. The transformation from gaming company to Internet gaming company resulted in a price jump that skews our average.
On the other point, the Average is not misleading if the companies listed were already active in their Internet fields on January First. In fact, the point of the Average is to provide a handy quick reference to see how these stocks have done this year.
Stocks that were issued as an IPO during the year are listed from their IPO date and price. So far I only have one in the list - Versus Technologies.
As I have to agree with M.L. that the changelings skew the results, I will restrict the index to companies that were already Internet companies on New Year's Day or that came out as IPOs this year. Dion Entertainment will be taken from the Average and added to the Mining Companies That Became Internet Companies list, which I will rename as Companies That Developed into Internet Plays. (Sounds like some sort of horror movie title, doesn't it? The Internet Company That Ate New York City!) This sub-index will not be included in calculating the Average.
The other company on the list that made a huge jump in price is Cybersurf. But it has been an Internet Access Provider since 1996 so its inclusion in the Average is warranted. The price surge was a result of Cybersurf's launch of its innovative 3Web technology in March.
In further correspondence, M.L. suggested adding Envoy Communications Group to the companies watched. ECG is an advertising agency whose expertise lies in web based and interactive media according to a report from Chris Evans of Dominick & Dominick Securities last November. Envoy's subsidiary, New York ad agency Hampel/Stefanides, recently won the contract to do online advertising, media planning and placement for Toshiba, the giant electronics firm.
M.L. notes that ECG was Potential Mines Limited back in 1981 and went through a number of changes before becoming Envoy Communications Group in 1996 And a company already on my list, Axia NetMedia was Canadian Mining Resources before becoming Axia Multimedia in July 1995. These two, he suggests, are the "original" mining net plays. He may be right, but as they both were Internet plays by January 1st, I'll add ECG to the Average and keep Axia on it.
He also suggested checking out LatinGold Inc. and Storage One. LatinGold, as the name suggests, was a gold mining company until it decided to become an Internet e-travel company with some strategic acquisitions. The first announcement came out in March and the stock jumped from around 7 cents to 90 cents before falling back to yesterday's close of 55 cents.
Storage One is a company that provides "storage technology peripherals and devices". Since January it has acquired web designer Rollercoaster Studios, Netword Inc. which simplifies complicated URLs, and Internet pet food retailer Petopia. The stock has jumped from around 7 cents in January to a high of $2.16 before settling back to yesterday's close of $1.50.
Both will be added to my changeling list along with Dion Entertainment. A number of other stocks will be added to the lists as well.
My thanks to M.L. for his comments and suggestions. If you want to pass on your thoughts on the Canadian Internet Stock Average, please email me. I'd love to hear from you. Or post a comment to our Bulletin Board!
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The Personal Finance Course - A review of an interesting interactive course recently released.
Mining the Net - My May 21 article on mining companies that became or are in the process of becoming Internet companies.
High Tech Links - my collection of High Tech Links at Investing: Canada.
Canadian Internet Stock Average - my charts of Canadian Internet stocks and how they have fared since January First.
Disclosure: The author does not own any shares in any of the companies mentioned in this article.
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