8x8 Surges in Thanksgiving 2003 Bubble: Taking Stock (Update3)
2003-11-28 13:25 (New York)
8x8 Surges in Thanksgiving 2003 Bubble: Taking Stock (Update3)
(Adds Wall Street Journal report in eighth paragraph.
Updates with closing stock prices.)
Nov. 28 (Bloomberg) -- Shares of 8x8 Inc., a provider of
long-distance phone services over the Internet, have doubled this
week, while rival Deltathree Inc. has advanced 84 percent. To
money manager Andrew Abrams, they're this year's examples of the
Thanksgiving-week bubbles that crop up in the stock market.
In 1998, retailers such as Books-A-Million Inc. and CDNow
Inc. soared. The next year, investors piled into companies that
make the Internet's plumbing, including Ariel Corp., a maker of
modem cards, and software company Elcom International Inc.
If that history is any guide, Deltathree and 8x8 will give
up their gains next week, said Abrams, who runs Abrams Investment
Partners in Greenwich, Connecticut. Thanksgiving-week surges are
driven by individual investors who seize on hot stocks being
promoted by analysts or newsletters, he said.
``If there's a story around and people are desperate to
trade, they'll find it and pile in,'' said Abrams. ``It's a lot
of day traders who say, `Ooh, that sounds like a cool story.'''
Many professional traders and money managers are absent
during Thanksgiving week, leaving the field to individuals, said
Abrams, who worked for nine years as an institutional stock
salesman at brokerages such as Prudential Securities Inc. Those
investors have plenty of time during the slow holiday week to
troll the Internet for stock tips.
Along for Ride
Deltathree rallied 43 percent Wednesday and 8x8 soared 79
percent after Tobin Smith, a newsletter editor and TV
commentator, recommended 8x8 in an interview with Forbes
magazine's Web site. Smith didn't return a call.
``We believe that article is what's driving the stock,''
said Hugh Reese, vice president of sales and marketing at Santa
Clara, California-based 8x8.
Other Internet telephone service companies rose, as the
attention on 8x8 provided ``exposure as a group,'' said Ari
Moses, an analyst with Blaylock & Partners LP. Net2Phone Inc.
surged 33 percent. The Wall Street Journal also reported today
that so-called voice-over-Internet-protocol technology threatens
profits at companies such as Verizon Communications Inc.
``The industry is really hot right now,'' said Moses, who
has a ``buy'' rating on Net2Phone shares and doesn't own the
stock. ``Every day you get little bits of news out there from the
press. Investors are trying to figure out where they can put the
money.''
8x8 today climbed 76 cents, or 11 percent, to $7.52,
extending its gain for the week to 131 percent. Deltathree added
47 cents, or 12 percent, to $4.26 and Net2Phone climbed 30 cents,
or 5.1 percent, to $6.22, up 37 percent since last Friday.
Quiet Period
Net2Phone spokeswoman Sarah Hofstetter said the stock's rise
is related to the company's exit from a ``quiet period'' in which
Net2Phone couldn't promote itself while raising $63 million in a
stock sale. With the quiet period over, executives can talk about
Net2Phone publicly.
Chief Executive Officer Stephen Greenberg said in a
television interview Wednesday on CNBC that the cost reductions
voice-over-Internet technology provides is a ``great opportunity
for the future,'' Hofstetter said.
Paul White, a Deltathree spokesman, said the company has met
or exceeded its sales and earnings forecasts for 12 straight
quarters. ``The market is coming back to respond favorably to
voice-over-IP companies, particularly pure plays like us,'' he
said.
Vik Grover, an analyst at Needham & Co., who has a ``hold''
rating on Net2Phone, said investors are ignoring the possibility
that costs may rise for the voice-over-Internet industry. The
Federal Communications Commission will discuss next week
``potential regulation of this industry, which could force these
companies to start paying access charges,'' said Grover.
Internet-Like Hype
VocalTec Communications Ltd., maker of software for long-
distance calls over the Internet, surged $1.58, or 35 percent, to
$6.07 today. Z-Tel Technologies Inc., which used the Internet to
enhance the local and long-distance services it provides, climbed
$1.44, or 92 percent, to $3.
``The move in the shares of Deltathree and 8x8 is ironic,''
said Grover, who said he couldn't comment on Net2Phone because
Needham served as an underwriter for the company's recent stock
offering. ``The moves in these stocks aren't reflecting these
regulatory issues.''
Investors should be skeptical that voice-over-Internet
technology will prove to be a road to riches, said Abrams, the
money manager. Internet stocks were hyped with similar promises
in the late 1990s.
Books-A-Million, which in November 1998 operated 172
bookstores in 17 states, said on Nov. 25 that year that it had
spruced up its Web site. The stock tripled on Friday, Nov. 27,
the day after Thanksgiving, finishing at $38.94. Gain for the
week: 1,171 percent. The stock, which never closed that high
again, closed Wednesday at $4.60.
22 Cents
CDNow, an online retailer of compact discs, more than
doubled the same 1998 Thanksgiving week to $26.88. The stock
subsequently plunged to $2.97 before CDNow was acquired in July
1999.
In 1999, Ariel tripled the day before Thanksgiving, and then
tripled again the day after, finishing the week at $37. On the
following Monday, the shares plunged 61 percent. The stock now
trades for less than 1 cent. The company in June of this year
sought protection from creditors.
Elcom soared 150 percent that same week after saying it
would join Visa International Inc., the world's biggest credit
card association, in offering online-commerce software. The stock
peaked a month later at $36.50 and finished this past Wednesday
at 22 cents a share.
Shades of EToys
Internet retailers surged again during Thanksgiving week
2000, although the gains were smaller. EToys Inc. jumped 13
percent and Barnes & Noble.com Inc. gained 7 percent. EToys filed
for bankruptcy protection in March 2001, and Barnes & Noble Inc.
this month said it plans to repurchase the shares of Barnes &
Noble.com that it doesn't already own. The stock is little
changed since November 2000.
The Thanksgiving-week bubble phenomenon took a break during
the bear-market years of 2001 and 2002. This year, with the
Nasdaq Composite Index up 47 percent, it's back in full swing.
Next week, when a full complement of traders and investors
are back at their desks, will be the true test of Internet-
telephony stocks, said Abrams.
``There's nobody around,'' he said. ``If there's no follow-
through on Monday and Tuesday, the stocks will come right back
down.''
--Phil Serafino in the New York newsroom (1)(212) 318-2358, or at
pserafino@bloomberg.net, with reporting by Don Stancavish in
Princeton and Ari Levy in New York. Editors: Schatzker, Chu. |
