CNBC's FABER REPORT: Is Internet Fever Breaking?
The following report was aired Thursday on CNBC-TV by CNBC reporter David Faber:
"Is it really happening...is the bubble of speculation in Internet stocks truly deflating or simply taking a deep breath? That is a key question today as investors who have been shorting these shares for months and getting crushed are wondering whether it is time to try once again.
In part, the substantial fall in shares of Yahoo, Amazon and eBay, to name three of the biggest recent losers, may be due to a decline in the short position. In the past, given their limited float and a big short position, day traders were able to force the shorts to cover their positions..running the stocks even higher. That doesn't appear to be happening now..perhaps because many of those stupid enough to short these names in the past gave up. Another factor may be the round of higher margin requirements which many brokers recently imposed on their clients. I've reported on this trend for some time..but it continues. and when a broker requires a client to put up most or all of the purchase price..it can stem day trading. Another factor, perhaps, a look by investors at what may never be a particularly strong profit model for on-line retailers.
On Tuesday, Onsale.com said it would sell items at cost from its Web site to drive traffic and enhance other revenue streams. But in an interview Tuesday morning..CEO Jerrold Kaplan gave us some sense as to what his company's ultimate profitability might be:
"I think that after expenses we're projecting, when the business matures and gets to a steady state, somewhere in the 3 to 4% range for an operating net."
Faber: "Consider that when Microsoft reported earnings earlier this week..its net profit margins were an astounding 40%..roughly 10 times the margins Onsale hopes to achieve. Perhaps that fact is sinking in with investors.
As well, while DLJ's Internet conference last week was heavily attended and included a Who's Who of Internet companies..it may have helped portfolio managers in starting to apply a more rigorous selection process for their stock picks in the area. And finally, don't forget the lockups. The story of the Internet bubble has been related to the small floats these companies maintain..but as their venture investors are able to sell their shares when the lockup expires..the float will increase and the ability to move the stocks may decrease. eBay for one is an example. It came public on September 24 selling 3.5 million shares for $18 each. Its lockup expires 120 days later which is very soon...and that will allow for the sale of 24.5 million shares..seven times the current float.
I am told that eBay may be trying to come up with a plan to stem that selling through a renewed lockup period for some of the shares."
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