With revenues from online shopping reaching “critical mass” by the end of last year, interest from the financial community has been steadily intensifying — even reaching a frenzy by some accounts. Online mega-sites like AOL and Amazon.com have fast become the darlings of Wall Street, with their most profitable product being, not goods and services, but hope, i.e., the expectation that the phenomenal growth of the price of their stock will continue at the current break-neck speed.
Against this backdrop, the Nasdaq-Amex Market Group announced on Thursday that it will trade options on the new ‘TheStreet.com E-commerce Index’ (ticker symbol: ICX) beginning February 17, 1999. The new index will be listed on the American Stock Exchange, and will consist of a basket of stocks from fifteen companies described by Nasdaq-Amex as “actively-traded companies that generate all or a significant portion of their revenue from commerce conducted over the Internet.”
Investors in the newly announced index will have the opportunity to trade in options. According to Clifford Weber, vice president for new product development at the Amex, “The volatile nature of this sector makes options an appealing way to participate in the sector’s development. Because the index tracks the movement of 15 different stocks, company-specific risk is reduced.”
This is the second announcement reported by the E-Commerce Times in the past three weeks regarding the establishment of an aggregate e-commerce stock investment option. On January 15, Chicago-based John Nuveen Company (NYSE: JNC) introduced its own e-commerce potfolio consisting of 35 e-commerce stocks.
Who’s In and Who’s Out
The most surprising aspect of the new index is not which companies were chosen, but rather the companies that are conspicuously absent from the list. The index is heavily weighted in favor of online vendors of products and financial services, while e-commerce technology companies were largely excluded.
As such, TheStreet.com index will be mostly a consumer-revenue driven index, even though business-to-business transactions are still at the forefront of e-commerce.
Included in TheStreet.com E-commerce Index are:
AMZN – Amazon.com, Inc.
AMTD – Ameritrade Holding Corp.
BKS – Barnes & Noble, Inc.
BVSN – BroadVisionInc.
CDNW – CDnow, Inc.
EGRP – E*TRADE Group, Inc.
EBAY – eBay Inc.
EGGS – Egghead.com, Inc.
HLYW – Hollywood Entertainment Corp.
MWHS – Micro Warehouse, Inc.
NTKI – N2K Inc.
NM – National Media Corp.
ONSL – ONSALE, Inc.
PPOD – Peapod, Inc.
PTVL – Preview Travel, Inc.
TheStreet.com E-commerce Index uses “equal-dollar weighting” to ensure that each of the component securities is represented in approximate equal dollar value. Adjustments to the Index are made quarterly in order to ensure that each component stock continues to represent approximate equal market value.
ICX options feature “European style” expiration and cash settlement, meaning options may be exercised on the last business day prior to expiration. The specialist unit for the new index options will be Susquehanna Investment Group.
Who Wins and Who Loses
Undoubtedly, TheStreet.com is the biggest winner. After all, it’s not every day that a two-year old online news publication establishes an options index with Amex-Nasdaq.
Founded in 1996 and based in New York City, TheStreet.com, publishes daily investment and financial news. The company’s editorial team includes 50 experienced financial journalists and two dozen contributors. Reportedly, its readership includes approximately 200,000 individual and institutional investors.
The likely loser resulting from this announcement is Cybercash (CYCH), one of the most famous and earliest e-commerce solutions providers. The company provides online payment processing technology which has been widely adopted by successful e-commerce sites. Nonetheless, the CyberCash stock was not included in TheStreet.com index, nor was it included in Nuveen’s e-commerce stock portfolio, which may very well raise questions among the company’s surprised investors.
Last month, The John Nuveen Company (NYSE: JNC) announced its own “E-Commerce Sector Portfolio” that consists of 35 stocks. Investors can buy into the defined portfolio for a minimum initial purchase of $1,000 (US$).
In an exclusive interview with the E-Commerce Times, Bill Adams, managing director for Nuveen Defined Portfolios said “There has been an enormous amount of investor interest in e-commerce stocks. Clients are asking, ‘What should I buy? Where should I invest?’ and financial advisers are finding it difficult to pick just one or two stocks. The market has been screaming for a solution. People want the ability to buy a whole basket of stocks that represent the e-commerce market.”
Given the market volatility of many of these stocks, Nuveen recommends the E-Commerce Portfolio be considered an aggressive growth investment. It is structured as a buy-and-hold investment, for five years. Active investors who like to take charge of their investments may see this as a negative. However, for an easy way to invest in one of today’s hottest markets, without doing alot of your own research, the e-commerce portfolio is certainly an option.