In the Silicon Valley office of a company called Inktomi, Chief Executive Officer David Peterschmidt is talking to new employees. Some of them may have trouble understanding exactly what he's talking about.
But they won't have any problem getting this: Inktomi, which provides a service that lets other Internet companies retrieve information quickly, is growing so fast that it's had to build a new headquarters. It went public a year ago at $18 a share. It immediately doubled, split once, and now is selling at about $100 a share. "Today it's worth about $5 billion market cap," says Peterschmidt. CBS News Sunday Morning Correspondent Rita Braver reports.
Inktomi has never made a profit. It's never paid a dividend. It is just one of thousands of hot new technology companies that are both operating at a loss and fueling a frenzy in stock trading. The companies are all part of the Internet, the world wide information network that lets computers and their users talk to each other and share data on a real-time basis.
You can already get the latest news on the Internet and effortlessly send electronic mail. You can shop for goods or services, toys or books, or even airplane tickets. You'll soon be able to get television programs and movies via computer too.
Few of the companies that provide these services make any money from them. Nevertheless, millions of stock buyers are speculating that these businesses, with no proven track records, will eventually bring in big money.
Some investors, however, are quite skeptical. Joe Fisher, president of an investment club in Staten Island, New York, is one of them. "The club invests only in companies that have made a profit in the past and are continuing to make money, so there's been no Internet buy," says Fisher. "But like a lot of us, club members are second guessing themselves. They question the wisdom of investing in the Internet, but they also question their decision not to invest."
Financial writer Jane Bryant Quinn doesn't think Fisher and his friends will have missed out in the long run. "They are so crazily priced, they are so beyond anything that we've ever known in posting a stock intelligently, they simply cannot deliver what people would expect as a long term investor," says Quinn. "Everybody thinks that they will be the person who gets out before the fall. You always think it isn't going to happen to you. But times will change and the change is not announced in advance. And when it turns out that it changes, there will be a big drop and people are going to lose money."
But there's a different view at theglobe.com. Co-founders Todd Krizelman and Stephan Paternot, two 25-year-olds who founded the multi-million-dollar Web company with a mere $15,000 investment when they were Cornell undergraduates.
They finished college, to their parents' relief, and kept their company going too. They call the globe.coan "Internet community." It's funded by advertising revenues but free to all users, like broadcast radio or television. But at The Globe, you can talk back, as the main goal is to foster cyberspace friendships.
"You have people who are chatting, you have people in forums, you can self-publish, you can join with other artists and little interest groups," says Krizelman.
When theglobe.com went public last year the stock was priced at $9 a share. It opened at $87, split once, and is now trading at about $16 a share. The company is now valued at about half a billion dollars. Together, the founders own about 15 percent.
There have been no profits so far, but the founders insist that the economics of their company are based on the fact that every day, millions more people are logging on to the Internet.
"Do you want to try and capture a smaller part of the market and be profitable, or do you want to just go and grab as much territory as you possibly can?" asks Paternot. "In our particular case, like most Internet sites, you're trying to go global. You're trying to go capture six billion people, and if it means you push off profitability until later. . . However, the stakes are much bigger. That is what's much more interesting to everybody."
Many of those investing in Internet stocks are so called "day traders," people who move their investments in and out of these companies quickly. Of late, there have been big fluctuations in the market. Both Inktomi and theglobe.com are down from their high points of this year.
Still, all business analysts agree with Inktomi's Dave Petershmidt that Internet companies are here to stay.
"I think they represent the future," Peterschmidt explains. "They're not just about what's going on today. It's pretty clear that the Internet is going to be the major medium for the way we conduct a lot of our daily lives both in information but also in the way we live. Some companies will fall by the wayside and won't make it. But I think that's really the minority. Normally, what happens is the smaller companies will get absorbed in the larger companies and there'll be consolidation."
Quinn agrees, to a point. "I say, take a little bit of your money and buy it, it doesn't hurt," Quinn continues. "It's really a risk assessment. Can you afford the loss if your stock goes down 75 percent? If the answer is yes, and you feel that you want to have a little fun with it, why not? If the answer is no, it would wreck my life it if it went down 75 percent, you have no business buying it."
And from California's Silicon Valley to New York's Silicon Alley, even the hottest of the Internet hotshots say that's good advice.