Long-Term Carping

By James J. Cramer

For years, the rap on American managers has been that they're short-term thinkers, cowed by Wall Street--the nerve!--to make the quarterly number or see their stock price sacrificed to the earnings gods. What this country really needed, said the pundits and business professors, was a group of CEOs who had the guts to go long. Now, at (long) last, a new generation of managers, like Jeff Bezos of Amazon and Tim Koogle of Yahoo, Steve Case of America Online and Tom Jermoluk from @Home, has emerged to do exactly that, through aggressive acquisition strategies, massive infrastructure spending and expansion at a clip that would make old-line companies get motion sickness. These young chieftains have shown a true disdain for the next quarter's results. In fact, Amazon's Bezos went so far as to urge those concerned with short-term performance to sell his stock, something no one else has ever done in the 20 years I have been trading.

So what happens? Bezos et al. are catching flak from the same quarters for not caring about profits! Hardly a day goes by that some pundit doesn't blast Net managers for spending recklessly or building without an eye toward making money. The now-stale-but-ever-prevalent knock against the e-companies goes like this: Sure, all well and good, but talk to me when they can make money, if ever. These businesses are worthless until they can make a profit.

Wrong! By eschewing near-term profit, these outfits are building brands that could be worth many times their current prices. Yahoo, which this week announced its purchase of money-losing Broadcast.com right on top of acquiring money-losing Geocities, is managing for a world that doesn't even exist and may not for years, a world of thousands of intertwined communities in constant contact over the Internet.

Amazon, once criticized as a bookseller that would never show a profit, turns out to have used its online book business as a template for forays into music, drugs, pets and, this week, online auctions, perhaps the hottest area on the Web. Maybe its $28 billion market cap isn't so wacky if Amazon becomes the world's first online department store.

Incredibly, amid the catcalls of the skeptics, one constituency seems to practice that old-time religion: online traders. These e-buyers--indeed, they are mostly buyers--believe in the Net long-term. We know it was the e-little guys doing the buying because the average size of each trade was well below a thousand shares. What seems flaky to Wall Street seems downright rigorous to e-Main Street.

How long will these new investors and new managers continue their symbiotic relationships? So far this year, 30 new Internet companies have come to market, and the buyers have lapped up their deals. Meanwhile, companies with real earnings that have gone public, including Pepsi Bottling Group, one I bought for the long term this week, go flat soon after opening.

Some of these e-companies will prove that they will never be highly profitable, and we will witness unheard of amounts of value being wiped out. But others, operating without the constraints of three-month handcuffs, will inherit the lion's share of the next generation's commerce by focusing precisely on what that next generation might want when it takes over the reins of the economy. That is long-term thinking at its best.

Cramer runs a hedge fund and writes for thestreet.com which has business deals with and investments in Yahoo and AOL. He also holds BCST. This column should not be construed as advice to buy or sell stocks.