From Internetstocknews.com
"3. INTERNET SERVICE OUTAGES – HOW SHOULD INVESTORS REACT?
by Chirag N. Amin, M.D.
With the technology-heavy Nasdaq closing at successive all-time record
highs, coupled with strong earnings numbers from Internet leaders such as
Yahoo!, as well as inflation indicators being kept in check, many Internet
companies have continued to thrive, with their stock prices returning to
their 52 week highs which they reached this past April. Internet IPOs have
also been soaring, with companies such as China.com running-up over 200% on
its IPO. It seems as if the Internet euphoria will continue through these
hot summer days.
Nevertheless, with the continued rapid growth of the Internet, there have
been some companies that have been experiencing difficulties in handling
the ever-increasing web traffic. These difficulties have resulted in a few
companies' web sites experiencing service outages, which have outraged many
Internet users. These Internet service outages have cost these companies
dearly, losing several thousands, and, in some cases, millions of dollars
in revenues, and have also wreaked havoc in these companies' stock prices.
At a point when competition has been extremely fierce in the rapidly
evolving Internet world, these outages could prove to be extremely
detrimental to a company's mere existence.
One notable example has been with the web site of perhaps the largest and
best-known online auctioneer eBay (Nasdaq: EBAY, Recent Price: 127), which,
on June 29, experienced a service outage which lasted for several hours,
preventing its members from placing bids on auctioned items or from posting
items for sale. For eBay, this has been third service outage in less than
one month. Although eBay has developed its auction site into a leading
e-commerce venue, and has been able to generate millions of dollars in
revenues from its site, many Internet users were frustrated by these
outages. As a result, eBay's stock price has taken a beating as of late,
being down over 40% from its 52 week high of 234 in April, and well below
its 50 day moving average. eBay is tentatively expected to report
quarterly earnings on 7/26/99, and these service outages may have a
significant impact on their earnings as well as revenue growth.
Another company which has also suffered from recent service outages is
online broker E*Trade (Nasdaq: EGRP, Recent Price: 39). E*Trade
experienced a service outage on 7/9/99 between 11:20 am and about 3 pm EDT,
which prevented many of its customers from placing trades online. Like
eBay, E*Trade's stock has also been underperforming as of late, trading
well-off of its 52-week high of 72 , and also trading below its 50 day
moving average.
Unfortunately, with Internet traffic continuing to grow at a feverish pace,
it is likely that we will continue to see more problems relating to service
outages among various Internet companies. Nevertheless, as Internet users
as well as Internet investors, the question we must ask ourselves is if
companies such as eBay and E*Trade will continue to struggle secondary to
these service outages. It is likely that these stocks could adversely be
affected in the short-term, as many fickle Internet investors shy away from
the bad news.
However, if we consider taking a contrarian approach, this could also be
viewed as a significant buying opportunity, as eBay and E*Trade, both
established leaders in their respective Internet sectors, continue to grow
and aggressively market their services. After all, if we look back at
history, AOL, in its early years, experienced these same problems, as their
Internet service was plagued with busy signals, disappointing numerous
subscribers. However, AOL acted promptly, aggressive spending money to
grow and update its servers to accommodate the increasing demand. As a
result, AOL stock has skyrocketed several hundred percent since that time,
with the company now having over 17 million loyal subscribers. In my
opinion, after looking closely at the fundamentals of eBay and E*Trade, it
is likely that, in this case, history will likely repeat itself.
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