Surf's up for high-risk ride on the Net

MOST investors are aware that a boom is taking place on the Internet, without probably having much direct experience of surfing the World Wide Web. At present investing in the Internet is all about buying the concept. If your approach is rooted in such old-style fundamentals as assets, dividends and price-earnings ratios, the Internet is not for you; nor indeed are increasingly large chunks of the US and UK stock markets.

But for investors who like excitement and can live with outrageous levels of risk, the Internet has it all. Growth is exponential. The leading Goldman Sachs technology analyst, Charles Elliott, who tipped the palmtop computer group Psion at 396p earlier this year (it is now 853p), says sales of software for use on the Internet are exploding. On Goldman's figures, Internet-related software sales will grow from $160m last year to $2bn by 1997, and even that is just the beginning.

The ultimate Internet stock is the US group Netscape Communications, which was floated on the US Nasdaq market recently at $28. Since then the shares have been as high as $171, against $145 currently. It is stretching definitions to feature in a smaller companies column a group valued at nearly $6bn. But profits are small. Netscape made $1.4m after tax in its third quarter to end-September, and Goldman's full-year forecast is for earnings per share of 2 cents.

Then we should see blast-off. Next year earnings are forecast to reach 30 cents, then 75 cents, to drop the p/e to 193.

Why the excitement? The Internet is a global network and companies and individuals have been joining in droves for the cheap communications facility of E-mail for the price of a local phone call. Now it is turning into a global marketplace, with companies using Netscape's browser software to access (surf) the Net, and setting up Web sites where the huge wired- up customer base can see, and buy, their goods and services.

Between 70 and 80 per cent of individuals linked to the Internet use Netscape's Navigator software to find Web sites which interest them. Netscape has built its position by giving away its software on free trials. Revenue will come partly by making more people pay for the package, but, far more significant, from companies wanting to reach the huge customer base. They are predisposed to use Netscape's server software packages to set up their Web sites. The dream is that Netscape is at the heart of the next wave of computing, with vast earnings by the end of the century.

It is cheap to join the Internet if you already have a computer and a modem link to the phone system. But a full multimedia set-up can cost pounds 1,500 to pounds 2,000. Already a furious debate has broken out in the US, with such software giants as Oracle suggesting the future lies with much more basic computers that can access the Internet cheaply, downloading from the Net software (eg, for word processing) as needed.

A tiny company, Viewcall Europe, quoted at 76p on the Ofex market, has taken the thinking a stage further. It has come up with a black box which allows users to connect their televisions to the Internet. Charges for connection will be similar to any Internet link (say pounds 50 up front and pounds 15 a month), but with no need to buy expensive computer equipment. The box that makes this possible is supplied by another UK company, Acorn, using the latter's Risc chip technology. Excitement about the potential has helped Acorn's share price rise to 228p, where the group is capitalised at more than pounds 200m, against less than pounds 6m for Viewcall.

Viewcall is signing up service providers such as Great Universal Stores, with its catalogues, to make home shopping possible, and other services including home banking will be offered. A trial in a thousand homes around Glasgow should begin early next year. A tiny company testing such a futuristic service is super-risky, and the chairmanship of the former playboy millionaire John Bentley may also raise eyebrows. But he has proved himself a visionary in the past with video rental.

Acorn itself will do well if the black box TV link takes off with Viewcall Europe or other, bigger players who may become involved. The analyst James Heal, at stockbroker Amro Hoare Govett, also points to the potential of Acorn's fast-growing 43 per cent owned ARM subsidiary. Risc chips are ideal for such applications as the brains of smaller devices like mobile phones, set-top black boxes or palmtop computers.