Taking Stock / The "S" Word

Comcast CEO Brian Roberts chose his words carefully when describing the impending merger of the giant cable TV company he heads, and the giant media company he wanted to swallow, Disney.

Mainly, he carefully chose the word he did not want to mention, a word he avoided like the plague - synergy.

Yes, exactly four years after the biggest media merger in the world, of America On Line with Time Warner, was unveiled, synergy remains a dirty word. Say synergy and be suspected of hollow sloganeering dating from the bubble days.

To recap, when Steve Case hugged Gerald Levin to his chest, they couldn't stop prating about the tremendous synergies the union would generate - the amalgamation of the old world with the new.

Four years later, Case and Levin are history. Looking back, people are wondering: Where the devil was that synergy anyway? The one company sells magazines and produces movies; the other links people to the Internet. Where do they mesh with each other? Why did we think they did?

The merger of AOL with Time Warner symbolized the New Economy, but it quickly became emblematic of the bubble era. They were two companies that had no business working together, but found themselves in each other's arms because of their managers' fear and loss of direction. One feared that his company would prove to be devoid of content; the other feared missing something huge that he didn't exactly understand.

Avast ye scurvy sloganeering!

And now it's happening again. Just when we thought we could forget all those terms, just when we thought we could file it under Bubble Begone, it's back.

True, Roberts studiously avoided the "s" word. Nobody mentions users or eyeballs any more. Clicks and the rest of that bubble babble is passe. But with each passing day, we see the confidence stealing back to the players, and that alt-neu terminology making a comeback in the public debate.

Wall Street analysts have been burbling all week about the unbeatable, umm, logic in a merger of Comcast with Disney. But whether their union makes any sense or not, one thing's for sure: Wall Street's movers and shakers have regained the confidence to take risks. At first, we saw consolidation among the banks, and now it's spreading to the sectors that suffered the worst shakeups in the last two years - communications and media.

"We haven't seen multiples like these since 2000," Eyal Desheh, chief financial officer of Check Point Software Technologies, confided last week, gazing with astonishment at Juniper Networks as it bought rival firm NetScreen at a company value of $4 billion - 15 times its revenues and 80 times its operating income.

If you'd said two years ago, as the bubble fallout begrimed the world markets, that software providers would be sold at multiples of 80, people would have looked at you with pity. Get over it, they'd have urged; move on, it's a cruel new world out there. Maybe your grandchildren will get to see things like that.

Search for value

Not so, it would seem. As the days pass, the weariness and cynicism are being replaced with excitement at the impending advent of Google on the stock market. People figure the search engine will reach a valuation of $15-20 billion, at least, and that its share will take off seconds after hitting the floor.

The underlying assumption is that the Google IPO will be the opening shot for a stampede of Internet and software offerings. Again, they'll be sold to the public for prices of five and 10 times their sales - yes, sales, that is, not profits.

Israel's entrepreneurs were among the first to smell the change in the air. No less than 10 companies are penning prospectuses. PowerDsine aspires to hit the market at a value of a quarter of billion dollars, eight times its revenues, just like in the good old days.

Two years ago, Dealtime, a comparison shopping engine, seemed about to close, or be sold for not much at all. Comparing prices on Internet - that sounded even worse than Internet retail. Meanwhile, Amazon is trading at a market cap of $18.2 billion, and Wall Street's underwriters are whispered to be fighting tooth and nail to lead a Dealtime, now shopping.com, offering at a company value of $400 million.

Another brawl is raging over Israel's AudioCodes. The company is losing money and is traded at a market cap of half a billion dollars; but the phrase "Internet telephony" is again sending shivers down the backs of analysts and bankers dying to cut the coupon of the $100 million offering it's planning.

Make no mistake, you can't compare between the bubble of 2000 and the situation today. Of the hundreds of companies that hit the market back then, only a handful remain in each market segment. The ones that survived the crash generally have business models; their management knows where they're going; and they usually sport profits, too.

But the speed at which the sentiment reversed, the rapidity at which "Internet" and "high-tech" lost their bad name and sparked imaginations again is thought-provoking.

It provokes thoughts about the speed at which the mood on the market can change; and it provokes thoughts about the fickleness of fashions that come, go and return, and about the tech world and its symbiotic relationship with Wall Street.

Two weeks ago, we wrote here that the high-tech's ride might look entirely different this time around because memories of the last bubble are still fresh and painful. Even now, we believe this time will be a lot less spectacular.

But let me change that conclusion a little: At the end of the day, investors are of two types - the ones with a short memory, and the ones that evidently have no memory at all.