Tuesday, December 29, 1998

Internet mania extends its reach

By RICHARD WATERS

The Financial Times

NEW YORK -- The Internet mania gripping the stock market has spread, touching other companies whose fortunes appear most closely linked to the on-line world, if Wall Street's current rally is anything to go by.

The shift has been powerful enough to alter the traditional pecking order in industries such as telecommunications and stockbroking -- a sea-change in stock market sentiment that has gathered momentum in the final days of the year.

Among the beneficiaries of this spillover have been companies such as Charles Schwab, the private-client broker which was a pioneer of online trading and investing, and MCI WorldCom, the telecoms company whose network carries a large part of the traffic for the Internet.

Shares in San Francisco-based Charles Schwab jumped Monday as investors continued to place a bet that the stockbroker would turn its early lead in the on-line world into a lasting advantage.

The mania for Internet stocks that took hold at the beginning of December has also continued to fuel the rise of Cisco Systems, the company which makes most of the routers and other equipment on which the Internet operates.

The enthusiasm has lifted Schwab's stock market value by 70 percent in the space of only eight trading sessions.

Coming after a strong year, the latest advance pointed to high hopes about the on-line future. The company's market capitalization had jumped to $18 billion by Monday, up from $7 billion at the start of the year.

Other brokerage stocks, meanwhile, are ending the year close to the levels they started it. As a result, Schwab now stands nearly shoulder-to-shoulder with Merrill Lynch, which is valued at $26 billion -- even though Schwab's $3.5 billion or so of revenue this year makes it less than a tenth the size of Merrill.

A similar though less dramatic shift in the telecom sector briefly pushed the market capitalization of MCI WorldCom above that of AT&T earlier this month. Because of the rapid growth of its data business, much of it tied to the emergence of the Internet, MCI WorldCom's shares have climbed from $30 to $71 this year, far outpacing the 25 percent advance at AT&T.

Despite getting caught up in the Internet fever that has swept across the stock market, companies such as MCI WorldCom and Schwab still rely for the bulk of their revenues on activities that have nothing to do with the online world.

The enthusiasm for pure Internet stocks continued unabated Monday, lifting the shares of companies such as Amazon.com, the Internet retailer, and America Online, the largest provider of Internet access.

(Distributed by Scripps Howard News Service.)