Earnings time: Day of reckoning for Internet stocks?
4:11 p.m. ET (2012 GMT) October 5, 1998
PALO ALTO, Calif — The upcoming earnings season could serve as a wake-up call for investors who have favored the volatile Internet stock sector, analysts said Monday.
At a time when economists are throwing around phrases like ''global recession,'' analysts say investors could lose their stomach for online companies that have sexy business plans but have shown no signs of turning a profit.
For the past year, many Internet companies have confounded logic by remaining popular with investors despite showing large splashes of red on their earnings statements.
But that might be about to change.
"In a market that is as jittery as it is now, institutional investors are looking for specific data points to help them be bullish or bearish,'' said Scott Rimer, an analyst with Cowen & Co. in Boston.
In other words, stocks of those Internet companies that show a profit or some clear indication of future potential will continue to rise, or at least sustain their high valuations. A slew of other second- and third-tier online businesses could suffer a loss of investor faith.
Most analysts now have a very short list of Internet companies they consider strong investments regardless of trends in the overall economy.
These include America Online Inc., the biggest online service; Yahoo! Inc., the most popular Internet directory, or portal, and Excite Inc., the No. 2 Internet directory, which some think could report its first profit this quarter.
Not that they are focusing only on the handful of companies reporting a profit. High on almost every list of Internet stocks to buy is Amazon.com Inc., the online retailer of books, CDs and more, whose name has become synonymous with successful Internet commerce.
Although Amazon remains deeply in the red — it is projected to report a modest loss in its third quarter — it has built a large and loyal consumer base and a brand that is practically a household name.
"If you and I go into a bar and we talk about Internet shopping, I would bet the word Amazon would come up,'' explained Keith Benjamin, an analyst with BancBoston Robertson Stephens. ''Amazon is a lot bigger than books.''
Some other more specialized Internet businesses that are still not showing a profit but seem to be moving in that direction are CNET Inc., the online service focused on computer products and news; and Sportsline USA Inc, which offers sports fans a range of products and services, from news to merchandise.
Although the bottom line is becoming more important, it is still not the most important focus of Internet investors. Most recognize the Internet as a very young medium whose growth potential is so large it is hard to quantify.
For that reason, they will also pay close attention this earnings period to metrics like "page views'' and "unique users'' that measure the number of people who visit a given Web site.
This is especially critical for noncommercial sites like Yahoo and Excite, which generate revenues based on the number of viewers they reach.
"It's a war for eyeballs,'' said Creative Strategies analyst Tim Bajarin. "And it's only going to intensify.''
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