Article from 'thestreet.com' bashing internet investors...says they have "lost their calculators".......
Internet Stocks Blast Past Their Tech Cohorts
By George Mannes
Staff Reporter
It's official: Like an Apollo rocket shedding its stages post-blastoff,
Internet stocks have cut loose from the technology sector and headed off
into orbit.
Despite a Friday pullback, Internet stocks seemed to own the market this
week, lifting prices beyond what were already considered by some to be
stratospheric.
Internet directory leader Yahoo! (YHOO:Nasdaq) is up 30% since April 7.
Spyglass (SPYG:Nasdaq), the software maker behind an also-ran Web browser,
jumped 70% on Thursday. Broadcom (BRCM:Nasdaq), which makes chips used to
give cable subscribers Internet access, saw its stock jump 123% on the
first day of trading after its white-hot IPO. Internet pioneer Netscape
(NSCP:Nasdaq), jumped 5 13/16 to 25 9/16 Thursday on takeover speculation.
And its stock is up more than 40% from a week earlier.
"If we've seen anything in the past week," says Paul Noglows, senior
analyst with Hambrecht & Quist, "investors are buying anything with
'Internet' attached to it, as opposed to the top handful of names."
Pointing to Thursday's performance, when Internet stocks were strong but
the tech-heavy Nasdaq fell, Noglows says, "I think we're seeing a
decoupling of the Internet stocks from the traditional cyclicality of the
tech sector."
Nick Moore, portfolio manager of the Orbitex Growth Fund, notices the same
trend, but it's got him a little more worked up. Price hikes in dimmer
stars like Spyglass and CyberCash (CYCH:Nasdaq) are a bad sign, Moore says,
because these companies failed in their original business plans: Spyglass
created a Web-browsing software, long since abandoned by most Internet
users, and CyberCash failed in its attempt to popularize a "digital wallet"
people would use for online purchases.
"These two are airballs. They're already failures," Moore says. Investors
"have run to cats and dogs. That's usually the last phase."
Compared to Internet hardware stalwart Cisco Systems (CSCO:Nasdaq), for
example, recent Internet high-fliers like Infoseek (SEEK:Nasdaq) are
extremely expensive, considering Cisco already has a strong position in a
well-established market.
"People have lost their calculators," Moore says. "Gravity is going to win
this. I don't know which day....Will people lose money? It's a certainty."
Equally skeptical is David Simons, managing director of Digital Video
Investments, an institutional research firm. "There's going to be a
blindside here," he says. "Only because there's absolutely no consideration
of risk....All you here is the potential is limitless. To which I say, the
pitfalls are bottomless."
As a sign of how shaky the underlying business of the Internet is, Simons
estimates that more than a third of all advertising on the Internet is
supported by companies whose basic business can't support those ad
expenditures. Instead, he says, they're being funded by money raised from
venture capitalists, initial public offerings of stock and secondary
offerings.
When this ready capital runs out, he says, it could have a seismic effect
on businesses such as Yahoo! and America Online (AOL:NYSE), which are
banking on advertising income for future growth. They'll likely have to
renegotiate multi-year advertising deals, Simons says.
"It's almost going to be the Internet equivalent of the bad banking loans
of the early 1990s," Simons says. "But unfortunately, there's no Federal
Internet Advertising Insurance Corporation."
Despite Moore's own warnings about bursting financial bubbles, he's not
100% skeptical about the fate of Broadcom, whose closing price Friday was
five times the original selling price estimated by underwriter Morgan
Stanley.
For comparable IPO performances over the years, he says, you have to look
at companies like Netscape, Apple Computer (AAPL:Nasdaq) and Genentech
(GNE:NYSE) -- a comparison he finds reassuring. "The company and the niche
that they're in is real, and well worth attention," he says.
But that doesn't mean the price is right at Broadcom's closing price Friday
of 53 5/8. "A lot of people in the market don't have their calculator,
apparently," Moore says. |
