High-flying Internet stocks come down to earth
Reuters Story - August 28, 1998 19:36
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By Andrea Orr
PALO ALTO, Calif., Aug 28 (Reuters) - Internet stocks have never followed the laws of the rest of the market but Friday they showed they at least follow the laws of gravity.
One day after the market collapsed in its worst trading day of the year, stocks of online directories, search engines, travel agents and retailers caught up -- or rather, down.
On Nasdaq, where most of the Internet stocks trade, the list of the biggest declining issues read like a Who's Who of Cyberspace.
Online bookseller Amazon.com Inc. fell $13.11 to close at $105.89; Yahoo! Inc., the most popular Internet directory, lost $8 to $83.06; search engine Inktomi Corp. was down $11.72 to $60.06; and Web programmer Broadcast.com Inc. fell $6.63 to $44.38.
To individual investors and money managers who have watched with dropped jaws as some these same stocks doubled in a matter of months, Friday's activity was a sobering reminder that they are still tethered to earth.
"It would be unrealistic to think that was sustainable," Volpe Brown analyst Derek Brown said of the run Internet stocks enjoyed earlier this summer. "You've clearly seen a rationalization of values."
Values of Internet stocks have always been a very slippery subject, even among those who value stocks for a living.
With the exception of Yahoo, most of the big online companies have never actually made a profit: the only way to justify their sky-high valuations was to argue that some day they would.
On that basis, analysts said Friday, nothing had changed for the leading Inernet stocks like Amazon, Yahoo and America Online Inc .
Most analysts strongly recommended the purchase of these shares, saying they are insulated more than many industries from the economic problems in Asia and Russia that had triggered the market sell-off.
In addition, they noted the long-term outlook for online companies is excellent, as the Internet transforms the way people work, shop, communicate and entertain themselves and emerges as a whole new media like the television did a few decades ago.
"My view is that when we come back from summer vacations and get back to school and start to buy stocks, the Internet sector will be one of the first groups to rebound," said Keith Benjamin, analyst with BancAmerica Robertson Stephens.
Moreover, there are new signs the Internet will become a mainstream consumer medium sooner rather than later.
Nielsen Media Research this week said some 79 million Americans -- close to a third of the population -- were now surfing the Internet. Falling personal computer prices are expected to bring even more people online.
The other salient point to remember about Internet stocks is that many of them, even after Friday's steep drops, are way up for the year.
"Unlike the overall market which has more or less given up its gains for the year, these stocks are simply giving back some of their profits," said Bob Walberg of briefing.com in Chicago.
Yahoo, for instance, now around $85 a share, started the year around $33, on a split-adjusted basis.
Yahoo is not representative of all the businesses that operate online. It has a strong brand that is practically a household name, reaches millions of users daily, and is rapidly adding features and partnerships to further expand its appeal.
As times get tough for the overall market, experts say investors will become more selective about Internet stocks, rather than buying up anything that has a ".com" in its business plan.
That became clearer on Friday, as stocks of the smaller Internet players and the newer arrivals to the business not only fell, but fell all the way back to near their lows for the year.
Online music retailer, CDNow Inc. was down $2.125 at $8.50 after setting a new low for the year of $7.625, well off its high of $39.
"Going forward, investors are going to be a lot pickier," said Benjamin. |
