Network Solutions drops on short seller report
March 25, 1999 09:00 PM
By Aaron Pressman
WASHINGTON, March 25 (Reuters) - Shares of Network Solutions Inc. NSOL , the company that registers the names of most Internet sites, dropped almost 10 percent on Thursday following negative comments by a well-known short-seller.
Network Solutions' stock has been highly volatile in recent weeks as investors try to sort out the value of the company's registration business which has grown phenomenally but is expected to face competition for the first time within the next two years.
Shares of Network Solutions closed at $101.0625 on Thursday, down $8.9375 in trading on the Nasdaq.
The Herndon, Va., company has registered more than four million Internet domain names, like Reuters.com, under an exclusive government agreement that is being phased out.
Most analysts believe the company's experience and customer base will give it a leg up on new competitors.
But in a report issued Thursday morning, Asensio & Co. said Network Solutions "will simply be one of hundreds of companies with identical registration services capabilities operating in a low price per unit, low barrier to entry, highly competitive, small...dollar value market."
Network Solutions said Asensio's report contained "numerous inaccuracies" and denied it had failed to disclose any material negative information.
New York-based Asensio has prospered by selling short the stock of companies it believes are in trouble while publicizing its concerns. In a short sale, an investor borrows stock, sells the shares at the current price and hopes to cover the loan by buying back the shares in the future at a lower price.
Other analysts were far less pessimistic about Network Solutions.
Bill Whyman, an analyst based in Washington with the Legg Mason Precursor Group, said that while Asensio's report made some valid points, Network Solutions was probably well positioned to compete.
"Network solutions will lose some market share and pricing will come down," Whyman said. "But I think they've overdramatized the negative. Even as (Network Solutions) loses share, the number of domain names registered is growing exponentially."
The market is growing so fast that Network Solutions could keep growing, in part by selling Internet users a variety of services related to domain name registration, he added.
Network Solutions also faced complaints this week that it improperly combined a Web site used to look up information about who had registered Internet names with its own site that charges $70 for registering new names.
The company always ran both sites, but the informational site was located at www.internic.net while the sales site was at www.networksolutions.com.
Much of Thursday's trading activity appeared to come from small investors as less than 123,000 shares of the more tha 5.6 million shares traded changed hands in large blocks typical of institutional investors.
After accounting for a two-for-one stock split that took affect Thursday, the shares were down $52.6875 from an all-time high hit on Monday.
Thursday's decline came as the overall stock market rose, including most Internet stocks.
((Aaron Pressman, Washington newsroom, 202-898-8312)) REUTERS
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