The Wall Street Journal Interactive Edition -- July 10, 1998
Is the Market Recovering From the Internet Fever?
After a month, the Internet-stock fever is finally showing signs of breaking
-- at least for four days.
On Monday, shares of Yahoo! Inc. shot up 26 3/8 on Nasdaq, leaving the
stock just shy of 200. Forget the old stock-market standby that the stock
was "showing strength" -- this was a company bursting through its
garments and becoming the Incredible Hulk.
Other Internet-directory services were looking decidedly green-skinned,
too: Lycos Corp. shot up 20 1/2 and Excite Inc. advanced 8 1/16. Even
Zapata Corp., the fish-oil concern whose recent out-of-nowhere offer to
acquire Excite provoked horselaughs on Wall Street, surged 11 5/8 to 21
1/2, in part amid news that it would cobble together 21 Web sites and
electronic-commerce businesses into a portal site of its own.
In the portal-site game, it seems, investors are willing to applaud
companies just for showing up.
The same mania was obvious for Internet
retailers Monday. Amazon.com Inc. zoomed
15 1/2 to 139 1/2, and Audio Book Club Inc.
advanced 9 3/4 to 19 3/8. Amazon, of
course, is well-known as the
Internet-commerce poster child, but Audio
Book Club? It shot up 9 3/4 to 19 3/8 amid optimism about its sales of
books-on-tape over the Internet -- despite the fact that Audio Book Club
is a bricks-and-mortar operation, not a pure Internet play.
Audio Book Club's Internet boost isn't unprecedented, of course: K-Tel
International Inc. and Sharper Image Corp. enjoyed runups for similar
reasons. But Audio Book Club's leap in share price left some analysts
shaking their heads ("They're no more of an Internet company than any
other company that sells things over the Internet," said William Blair &
Co.'s Abhishek Gami) and the company itself cautious ("I can only assume
that people are placing Internet-type valuations on our stock," Audio
Book Club's chief financial officer said, adding that "nobody likes to see
this much volatility"). Once again, companies were getting rewarded just
for putting a toe in the Internet arena.
All in all, just another Monday in the entertaining, slightly frightening and
thoroughly raucous party that Internet-stock mania has been since early
June, when NBC's investment in CNET Inc. signaled that the media giants
had become serious about developing a major Internet presence and
would pursue portal sites as their strategy.
But Tuesday was different: Yahoo fell 8 1/4, with Excite stumbling 10 3/4
and Lycos falling 14 9/16. Amazon stumbled 17 3/8, giving back all of
Monday's gains, and the Johnny-come-latelys were spanked too, with
Audio Book Club sliding 4 5/8 and Zapata falling 4. And the retreat
continued Wednesday, led by Amazon's falling 15.
Maybe it was profit-taking or jitters ahead of Yahoo's Wednesday
earnings announcements. Or maybe it was the effect of a Heard on the
Street column in Wednesday's Wall Street Journal, which questioned the
seemingly otherworldly valuations of the still-wet-behind-the-ears Internet
companies. Some analysts featured in the article indeed saw something
amiss: Lise Buyer, who is joining Credit Suisse First Boston, noted that
many Internet stocks are being valued "on a wing and a prayer," while
Prudential analyst Amy Ryan wrote in a note to clients about Amazon that
"something doesn't seem right." (Other analysts, to be sure, were more
sanguine.)
Yahoo's earnings report was what everybody was waiting for -- but the
report and the eventual reaction to it only furthered suspicions that Internet
fever may finally have broken.
Yahoo's operating net income topped analysts' estimates, and revenue
nearly tripled to $41.2 million, leaving investors jubilant and market
watchers bracing for Internet stocks to soar once again.
And that was what happened Thursday morning. Yahoo shot as high as
204, Excite hit 99, and Lycos rose to 85.
But Thursday also had an afternoon, one that wasn't so kind to Internet
stocks. Yahoo finished the day at 184, Excite retreated to 82 1/4, and
Lycos fell back to 70 15/16. As Warren Spahn once said after giving up a
home run to Willie Mays, "For the first 60 feet, that was a hell of a pitch."
If Yahoo turns in a good report and still surrenders its gains, is the bubble
bursting? Can the end be far off when Amazon has a market value nearly
that of Barnes & Noble Inc. and Borders Group Inc. combined -- despite
the fact that those two bookstore chains' combined annual sales are more
than 10 times higher? Does the fact that Lycos got a big boost early in the
week from news of a stock split (which has no effect whatsoever on a
company's value) mean the raucous party is careening toward a bad end?
Nobody really knows, of course: We'll get some more clues to throw into
the puzzle starting at 9:30 a.m. EDT Monday.
|
