July 28, 2000

InfoSpace more attractive with Go2Net acquisition

Each week, the Daily Journal of Commerce compiles analysts' recommendations on Northwest stocks.

Stock prices reflect Thursday's close. The Dow gained 69 points to 10,586, while the Nasdaq lost 145 points to close at 3,842. The S&P 500 lost 2.8 points to 1,449.

Analysts use the following guidelines for their recommendations:

• Strong buy, buy or highest
  
• Buy/accumulate, mild buy, outperform, attractive or above average
  
• Neutral, hold, reasonably priced, average or market performer
  
• Mild sell, unattractive, below average or underperform
  
• Sell, lowest

52-week high: $138 1/2
52-week low: $9 7/32

Strong buy. Although InfoSpace plunged more than 27 percent on Thursday after its merger announcement, the stock earns a "strong buy" rating from Dain Rauscher's Stephen Sigmond. He sets a 12-month price target of $83.

After Wednesday's close, InfoSpace announced its acquisition of Go2Net, as well as second quarter results that Sigmond said beat expectations. InfoSpace reported revenues of $24.6 million, handily beating Dain Rauscher's estimate of $21.9 million. A provider of Internet infrastructure services for wireless devices, InfoSpace in the second quarter extended its reach to wireless operators to include four of the five top carriers: Verizon, AT&T, SBC and ALLTEL.

"With the quarter's results, we believe that the company has substantial revenue momentum, including its cash backlog of $97.8 million," said Sigmond. "We also view the company's balance sheet as solid. As such, InfoSpace continued to expand its business, while building momentum and furthering its market-leading position."

The acquisition of Go2Net -- a leading provider of Internet applications and infrastructure technologies for narrowband and broadband devices -- should make the new company a premier infrastructure services provider for wireless, PC, narrowband and broadband platforms, Sigmond said. "We view the company's business models as highly compatible since both companies target merchants, consumers and platforms (wireless, broadband and narrowband) for their services," he said. "We believe that this entity will be the de facto standard in its industries."

52-week high: $67 3/4
52-week low: $9 1/2

Strong buy. Triquint recently reported strong second quarter results with earnings per share of $0.19 -- $0.05 better than Street estimates.

Wireless component growth has been in the area of 75 percent this year and forecasted to grow 140 percent in 2001, according to Aalok Shah of Pacific Crest. The company also continues to see strong revenues and margins from its foundry facilities.

"Triquint's third quarter is fully booked at this time and 80 percent booked to Q4 estimates," said Shah. "Given the increased visibility, management expects revenue growth to be around $129 million above last year's $163 million, figuring for 80 percent growth year-over-year."

"We believe Triquint is executing on strong market dynamics in this area," he concluded. "We reiterate our 'strong buy' rating and encourage investors to accumulate on weakness."

52-week high: $34 1/4
52-week low: $13 1/4

Neutral. Lack of sales predictability could hurt PathoGenesis, prompting US Bancorp Piper Jaffray's Peter Ginsberg to reiterate a 'neutral' rating.

Pathogenesis -- which develops and commercializes drugs to treat chronic infectious diseases -- reported last week that quarterly revenues climbed to a record $20.4 million from $14.3 million for 2Q99.

"We have increased our 2000 TOBI (tobramycin solution for inhalation) sales forecast to reflect this positive upturn in TOBI sales to $88 million," said Ginsberg. "This increase is offset by a concurrent increase in R&D expenditures reflecting PathoGenesis' substantial research effort to expand use of TOBI in off-label applications."

But he said long-term stability in TOBI sales quarter-to-quarter is still uncertain, and sets a 12-month price target of $31. "We note that PathoGenesis' stock appears to be nearly fairly valued, and recommend buying on weakness."

52-week high: $113
52-week low: $32 7/16

Market perform. Wednesday's post-earnings conference call, as one analyst put it, was "like attending a wake," prompting Pacific Crest's Steve Weinstein to take a show-me approach to the leading e-tailer.

Amazon's first quarter revenue of $578 million was below Pacific Crest's estimate of $600 million and consensus estimate of $585. Loss per share of $0.33 beat Pacific Crest's estimate of $0.36 and the consensus estimate $0.35.

"Everything below the revenue line was better than expected as Amazon shows an ability to control in operating expenses, improve gross margin and in our view demonstrate a path to profitability" said Weinstein, who on Thursday downgraded the stock from a "strong buy."

Weinstein said Amazon's sequential growth has been disappointing, especially compared with early 1998's 33 percent sequential growth. He noted that international sales growth declined 2 percent in the first quarter of 2000. "If the platform scaled effectively, international or products outside of books should have shown comparable growth," he said.

While he said Amazon can deliver $1 billion in sales in the fourth quarter and generate a positive cash flow, he believes the stock will underperform until then.

52-week high: $89
52-week low: $6 5/16

Buy. Avenue A this week reported second quarter results that beat Salomon Smith Barney estimates, with $52.4 million in revenue. The revenue figure represents a 356 percent increase over the revenues from the first quarter of 1999, and a 12 percent increase over the first quarter of 2000.

"Avenue A exceeded our revenue estimates by growing client count, a critical variable in the current rationalizing online advertising market," said Salomon analyst Lanny Baker.

Revenue per customer for 2Q00 of $481,000 was down 1 percent sequentially, but it was up 47 percent from 2Q99. The company also achieved a better than expected gross margin of 20 percent, compared with 18 percent in 1Q00.

"We reiterate our 'buy: high risk' rating on Avenue A, and expect the company to be one of the select market share winners that comes through the current shake-out process stronger and with fewer changes," said Baker.

52-week high: $37 3/4
52-week low: $16 3/16

Buy. SonoSite this week reported second quarter results that exceeded expectations, according to Bob Toomey of Dain Rauscher. Revenue for the quarter was $9 million vs. the estimate of $8.7 million. Loss per share was $0.31 compared with the estimate of $0.33, and $0.99 in the same quarter last year.

Toomey said higher revenue reflects growing market acceptance of SonoSite's technology. SonoSite designs, manufactures and markets hand-carried digital ultrasound devices.

"We expect sequentially strong growth in the U.S. over the next several years as a result of new products and the further development of the U.S. direct sales force," said Toomey. "Growth in Europe and Asia was also strong on a sequential basis."

New market penetration represented about 38 percent of revenue for the quarter. "We believe this reflects a broadening awareness and acceptance of SonoSite's technology and bodes well for further market penetration and growth," he said. "Our buy-speculative rating on Sono stock reflects our confidence in the company's significant long-term earnings potential."

Previous columns:

• Lattice Semi leads with logic devices, 07-21-2000
• Northwest Stock Report, 07-14-2000
• Expeditors finds growth in global logistics, 07-07-2000
• Online travel site rated a buy buy, 06-30-2000
• Primus leads in its e-business field, 06-23-2000
• Tektronix moves into high growth markets, 06-16-2000
• Nike maintains a strong foothold, 06-09-2000
• Esterline lifted by aerospace biz, 06-02-2000