Internet stocks soar amid scent of rising profits
By Huw Jones
NEW YORK, April 15 (Reuters) - Investors continued to pile
onto the Internet bandwagon on Wednesday, powering stocks to
new highs as Yahoo! Inc. <YHOO.O> showed the sector can be
profitable, analysts said.
But the dizzying rise makes Internet stocks vulnerable to a
sharp pullback, they cautioned.
"There is a feeding frenzy going on, and investors are
snapping up anything related to the Internet," said Andrea
Williams, research analyst, interactive content, for Volpe
Brown Whelan & Co. in San Francisco.
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Internet stocks soar amid scent of rising =2
"There are more believers that these companies have the
potential to become real businesses," Williams said.
Early Wednesday afternoon, the American Stock Exchange's
index of Internet stocks <.IIX> was up 2.49 percent as the
sector sprinted ahead of the broader market.
"I think what we are seeing is that last month when Compaq
and others computer hardware companies missed earnings
estimates, a lot of institutional money rotated out of these
and into Internet stocks," said Taylor Tompkins, an analyst at
Wheat First Union.
Compaq Computer Corp. <CPQ.N > on Wednesday reported first
quarter earnings of $0.01 a share, matching Wall Street
forecasts that were cut last month after the company warned it
would roughly break even in the quarter.
"A lot of momentum players are now jumping on the
bandwagon, and Yahoo!'s earnings last week just added fuel to
that," Tompkins said.
Yahoo! Inc <YHOO.O> last Wednesday reported it earned $0.08
per share in the first quarter, double Wall Street analysts'
expectations. In the same quarter last year the Internet
directory company lost $0.02 per share.
"Yahoo and AOL are proving you can make money," said
Charles Payne, head analyst at Wall Street Strategies.
Talk of a stock split at Yahoo! is also fueling the share
price, analysts said.
Volpe Brown's Williams said investors should focus on the
so-called "search engine" stocks.
"The are very well positioned and attract a
disproportionate share of the number of people on-line and, as
a result, they get most of the advertising dollars," Williams
said. "They are in a position to do deals with direct
marketers."
Tuesday, brokerage Merrill Lynch started coverage of four
search engine stocks, Lycos Inc. <LCOS.O>, Yahoo! Inc.,
Infoseek Corp. <SEEK.O>, and Excite Inc. <XCIT.O>.
Yahoo! was up 2-11/16 at 117-9/16 after hitting a new high
at 118-5/8. Lycos rose 3-1/4 to 71-7/8, and hit a new hight at
72-3/4. Infoseek was up 4-5/8 at 30-1/4, hitting a new high at
30-7/8. Excite was up 4-1/4 at 80-1/4, just below its new high
of 82-3/8. America Online <AOL.N> was up 1-7/16 at 75-3/4, also
hitting a new high at 75-13/16.
"We believe that Yahoo! has reached critical mass within
the Internet content and commerce markets," said Merrill
Lynch's analyst Jonathan Cohen.
"It is now appropriate to view the company's franchise as a
platform which advertising and commerce partners will need to
utilize going forward," Cohen added.
Several of the Internet stocks have recently announced
link-ups or acquisitions, thereby boosting potential earnings.
In January, Excite bought MatchLogic; Lycos has signed
Internet commerce agreements with companies such as CDNow
<CDNW.O>, and Barnes & Noble, and patented its spider
technology; last month Yahoo! and MCI Communications Corp.
<MCIC.O> announced a partnership deal.
Infoseek said on Tuesday it will buy the WebChat
Broadcasting System, a 2.7 million Internet community.
Analysts caution that investors may be too eager to snap up
any stock involved with the Internet.
The share price of K-Tel International <KTEL.O> has soared
since the music company said last Thursday it will launch its
new on-line service to sell products. The stock was up 3-5/8 at
25-1/4.
"Just because companies announce they will sell products on
the Internet does not mean they will be successful," Williams
cautioned.
Wheat First Union's Tompkins said the Internet stocks may
face the same fate as oil driller stocks, which rocketed last
year before a sharp tumble in the fall.
Some stocks, such as Mindspring <MSPG.O>, have soared from
a $12 per share offering price last year to 72-7/8 on
Wednesday.
"If one of these companies comes up short in earnings, that
might be some sort of trigger," Tompkins said.
Volpe Brown's Williams said a cooling off period would not
be unexpected.
"A lot of people have made a lot of money in a very short
period of time," she said. "I would not be surprised if there
is a period of profit-taking, and that would make sense."
((Wall Street Desk, 212-859-1737))
REUTERS
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