Weekly Wire
Memphis Flyer Flying High

By John Branston

APRIL 19, 1999:  Question: Pick the company that doesn’t belong in this group. (A) AOL (B) Microsoft (C) Dell Computer (D) Federal Express.

The one with all the trucks and airplanes, right? Internet and technology companies don’t run on gasoline and employ thousands of people who throw boxes and get grease under their fingernails. So the correct answer must be D.

Wrong, says FDX, which is spinning itself as the peer of any company in cyberspace. And it’s working. Image isn’t everything, but Internet cachet can mean millions or even billions of dollars in market valuation in today’s stock market. The price of FDX stock has gone from under $50 last October to over $100 last week. Talk about pumping money into the Memphis economy: The top five executives at FDX own more than 11 million shares, and thousands of other Memphians own shares as FDX employees or investors. A $50-a-share bump in a stock as widely held as FDX is like 50,000 or so Memphians hitting jackpots at the Tunica casinos.

While “our business is good,” as FDX CEO and president Fred Smith told CNBC’s Market Watch last week, it’s not twice as good as it was six months ago.

Hype is also a big part of the story. For the last two years, FedEx has played the media about as skillfully as it has any time in its 26-year history. “The airline of the Internet,” says Wired magazine, which was way ahead of the big national media in touting FDX as an Internet player. A growing number of analysts and publications from Barrons to The Wall Street Journal have since joined the chorus.

Last week, the FDX/Internet spin was running full throttle. In a 24-hour blitz, Smith was on CNBC while other FDX and Netscape executives touted their new Web alliance in a media teleconference call. More than 100 analysts and reporters were given a briefing at the new FDX Information and Technology complex in Collierville. Putting icing on the cake, last Thursday a new online retailer, Value America, did a public stock offering. The initial public offering price was $23, but within an hour, in the tradition of Netscape and Yahoo!, the stock was trading at $71. FDX bought 500,000 shares at $10 a share before the IPO, and Smith is on Value America’s board of directors.

FDX’s hot streak is both overdue and, in the eyes of some, well-deserved.

“Remember,” Smith told CNBC, “years before the Internet, FedEx deployed tens of thousands of proprietary shipping systems, and then we were one of the first users of the Internet and remain to this day in the transportation sector virtually the only company where you can actually effect a transaction using the Internet.”

“We were one of the first users of the Internet and remain to this day in the transportation sector virtually the only company where you can actually effect a transaction using the Internet.”

— FDX CEO Fred Smith

He could have added that FedEx groomed James Barksdale, its former chief operating officer who left Memphis to work for McCaw Communications and then became the first chief executive of Netscape, which pioneered the Internet browser. And that is as good a starting point as any for the remaking of the FedEx image.

In August 1995, Netscape was preparing to do an initial public stock offering. The price was tentatively set at $14 a share, when Netscape and its investment bankers sensed that there was a huge demand. So they repriced the stock at what seemed an audacious $28. And on the first day of trading, the price tripled.

That ushered in the age of Internet IPOs, which has included Yahoo!, EarthWeb, Amazon.com, and several others. While these stocks soared, FDX was basically stuck in a rut from the mid-1980s until it announced the purchase of Caliber Systems in 1997. There was a quick spike upward and a two-for-one stock split, then a bad tumble on fears of an Asian economic crisis and a strike by FedEx pilots.

“It’s a shitty business, labor-intensive and capital-intensive,” a money manager who admires the company told me two years ago.

Corporate executives can be sued by shareholders — as FedEx was several years ago — if they overstate prospects too specifically. Analysts and reporters aren’t under those constraints, and a story that strikes their fancy can create some buzz. A then-little-known upstart magazine that styled itself as the oracle of the Internet did one of the best sales jobs on FDX in this decade. In “The Airline of the Internet,” published in December 1996, Wired reporter Todd Lappin latched onto the angle that so many number-crunchers and reporters focused on yesterday’s news failed to see. His 14-page story began with the standard homage to the nightly loading and unloading of airplanes on The Ramp. But then, with full access to FedEx management, a Nethead’s expertise, and a flair for phrase-making, Lappin wrote a story so good it found a place in the company’s press kit.

Wired wasn’t hung up on the old icons of planes, trucks, conveyer belts, and the nightly package count. And it reached an audience that wasn’t hung up on them either, but was instead attuned to the fantastic possibilities of the Internet.

“The same kind of effect that Wal-Mart had in the retailing sector, that’s what the Internet is going to do to every business,” Smith told Wired. “We’re on the fulfillment end of that. All we have to do is execute and make sure the government stays out of the way.”

It would be two more years before establishment business publications like Barrons and The Wall Street Journal would say basically the same thing(see “A Spinning Timeline” below) . By then, Smith had backed down the pilots’ union with his celebrated “With Or Without You” letter, and Internet fever was running even hotter.

In the stock market, hype had become reality. A $100 Internet stock with a price/earnings ratio of 4,000 to 1 is worth just as much as a $100 manufacturing stock with a PE of 9 to 1. The executive talent and technical talent that FDX needs to staff its new Information and Technology center (virtually everything except air and ground operations is leaving the airport area) could go to computer companies or telecom companies and make millions in stock options. Like a beat-upon heavyweight, FDX had to get in the fight.

A Wall Street Journal story last November said FedEx executives “envy the lofty valuations of Internet companies such as bookseller Amazon.com.” Barksdale was quoted in the story saying moving items from point to point was “no longer a big deal.”

In fact, there was no better example of the wealth and opportunities available to top talent on the move than Barksdale himself, whose telecom, Netscape, and AOL holdings have made him close to a billionaire.

Newspaper and magazine articles, you say, don’t move markets? In fact, rumors of articles move markets. Internet chat moves markets. Compared to this fluff, a solidly sourced, friendly article in a first-class national publication is a papal decree. The day the Barrons article came out, FDX was up 6 percent. A day after FDX and Netscape announced their alliance, the stock was up another 5 percent. The only immediate result of that future alliance was that for the next news cycle those two companies were mentioned in the same breath and same headline.

Which is exactly the point.

As for Value America, the online retailer of computers, home furnishings, and golf clubs, it had lower sales ($134,000) as recently as 1997 than many neighborhood sporting goods stores. Now, thanks to the involvement of FDX, Smith, and Microsoft co-founder Paul Allen, it’s worth more than most major-league baseball teams.

What’s wealth without arrogance? FDX snubbed the local media, including the Flyer, at its high-tech pow-wow last week, barring everyone except The Commercial Appeal. Its executives are tossing off some awfully big numbers, like their self-serving assertion that 90 percent of electronic commerce is business-to-business (as opposed to the so-called ugly freight of Amazon.com shipping you a book), boasting of Netscape’s 13 million Netcenter members (fewer than 5 percent of online retailers plan to renew their portal advertising deals, according to a recent study) and predicting $1.4 trillion in e-commerce by 2003 (so what if XYZ Hardware orders widgets by computer if it still orders the same number of widgets?).

The current stock market is in no mood to dwell on such things. And, as another pretty good curve thrower, Dizzy Dean, once said, “It ain’t braggin’ if you can do it.”

If you can do it.

A Spinning Timeline

August 1995: Netscape, headed by former FedEx COO James Barksdale, becomes a publicly traded company and sets the trend for future Internet IPOs. The stock is priced at $28, triples the first day, and is up 500 percent in the first four months. In April 1996, Yahoo! will repeat the pattern.

December 1996: Wired magazine, self-styled oracle of the Internet, touts FedEx as “the airline of the Internet” in a 14-page spread.

October 1997: A FedEx in-house survey finds that 78 percent of small businesses “anticipate” using e-commerce within five years. Actual use, however, is only 29 percent, with 67 percent saying e-commerce has had little impact on their business.

June 1998: Wired strikes again, calling FDX “logistical revolutionaries” and “the delivery boy for the new economy” which “transports atoms with a speed and range matched only by the Internet’s ability to move bits.” Says Wired, “the future routes through Memphis.” FDX is one of 40 companies on Wired’s Index for the New Economy.

September 1998: Noting that highly respected Memphis-based Southeastern Asset Management owns 14 million shares in client accounts, Memphis magazine calls FDX, then $48 a share, an “undervalued high-flyer.” Only two of six other investment firms surveyed in the story like the stock.

October 1998: Morgan Keegan recommends FedEx stock, then trading at $49 a share, with target of $70 by April. Stock hits $100 in March.

November 1998: The Wall Street Journal asks “Will FedEx Shift From Moving Boxes to Bytes?” FDX is making a “monumental change” in mission. And FDX executives “envy the lofty valuations of Internet companies such as bookseller Amazon.com Inc.” Barksdale says “moving an item from point A to point B is no longer a big deal.”

November 1998: As pilots, the icons of the old order, threaten to strike, Fred Smith warns them that the company will go forward “WITH OR WITHOUT YOU.”

December 1998: Barrons magazine touts FDX as an Internet player and says stock could go to $200. Smith says, “Wall Street doesn’t really begin to appreciate FedEx’s role in this huge e-commerce revolution.” Stock goes up 5 percent the day the story comes out.

March 1999: Party pooper Forbes throws wet blanket on FDX as Internet player. “Delivering packages to residences, where most Internet consumer-shopping packages are sent, isn’t a very profitable business.”

April 1999: FedEx announces Web agreement with Netscape, insisting 90 percent of e-commerce is business to business. Separately, it meets with analysts and media to tout technology.

April 1999: Value America, a company in which FedEx has financial stake, goes public. Stock is priced at $23 but opens at $71.

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