Thursday December 10 6:24 PM ET
Overall stock drop cools Internet sector
By David Lazarus
SAN FRANCISCO (Wired) - Nothing like a little dose of reality to pour some cold water on red-hot Internet share
offerings. Investors were forced to factor in such quaint yardsticks as earnings and past performance when CBS'
Infinity Broadcasting -- a well-established company in a well-established industry -- made its trading debut
Thursday alongside a pair of Net-related outfits.
This may be the best way to explain why Internet America and AboveNet Communications failed to blast into orbit
the way Xoom.com managed to do just a day earlier. Sure, these new kids on the block posted respectable gains,
but nothing like what might have been expected if Infinity hadn't been on hand stealing much of the thunder.
''The market's been in need of this kind of wake-up call,'' said Miles Russ, an analyst with Wheat First Union.
''People were starting to get real nervous about these heady moves by Internet companies.''
IPOs aside, it was a down day for Wall Street. Profit warnings and reported cutbacks combined to drive the Wired
Index slid 9.01 points to close at 472.55, while the Dow Jones Industrial Average ended 167.61 lower at 8841.58.
The Nasdaq Composite shed 34.47 to 2015.95, and the S&P 500 was down 18.47 at 1165.02.
Infinity Broadcasting Corp, a division of CBS and the second-largest US radio network, arrived with 140 million
shares initially priced at $20.50 a piece. The offering raised nearly $3 billion, making it the third-biggest IPO this
decade. By the closing bell, Infinity's stock had advanced $2.50, or 12 percent, to $23.
Compare this with connectivity specialist AboveNet Inc, which gained $3.75, or 29 percent, to $16.75, and Internet
service provider Internet America Inc, which rose $1.88, or 14 percent, to $14.88. While no company should be
displeased with such an outing, these gains seem puny compared with the triple-digit leaps that have come to
characterize an Internet IPO.
''Infinity is a reality check,'' Russ said, noting that investors may have been awaiting a high-profile old-media
stock to force new-media valuations back in line with fundamentals. ''People are starting to pause.''
Not that this should have any lasting effect. With a number of juicy Net offerings waiting in the wings, Russ had
no trouble predicting ''the fever of the Internet will continue. There's so much liquidity coming into the market, it
has to go someplace, and the Internet is seen as the hot place to go.''
A bunch of that liquidity streamed into Broadcast.com Inc, which rose another $4 to $73.75 on enthusiasm for its
plan to air earnings conference calls online. Otherwise, most of the big Net names were caught in the market's
downdraft. Amazon.com Inc shed $3.13 to $213.13, and Yahoo! Inc was $5.13 lower at $192.75. Xoom.com Inc,
which more than doubled on its first trading day, lost $4.25, or 12 percent, to $30.19.
The session opened on a sour note after Merck Inc, the world's biggest drugmaker, warned late Wednesday that its
1999 profit would come in below analysts' expectations. Then, Thursday morning, Swedish telecom giant Ericsson
said it too doesn't think profits will be up to snuff. Merck fell $5.81 to $146.13, and Ericsson was down $4.75 at
$24.13.
The sell-off gathered steam on reports that MCI WorldCom Inc plans to tighten its belt and hand as many as 3,750
employees their walking papers. But even though the prospect of more layoffs spooked traders in general, it was
seen as a plus by MCI's investors, who have been awaiting such cost-cutting since the merged company was
formed. MCI's stock advanced 9 cents to $62.75.
In tech, Cisco Systems Inc (Nasdaq:CSCO - news) climbed 44 cents to $81.19 after Morgan Stanley Dean Witter
and Prudential Securities raised their price targets for the company. The network-systems leader is expected to
boost sales next year with introduction of slick new gear.
Other industry leaders were less fortunate. Dell Computer Corp (Nasdaq:DELL - news) slipped 81 cents to $67.31,
and International Business Machines Corp (NYSE:IBM - news) was down $4.44 at $165. Intel Corp (Nasdaq:INTC -
news) dropped $4.56 to $114.63, and Microsoft Corp (Nasdaq:MSFT - news) was $2.06 lower at $131.56.
Investors also looked askance at Aetna Corp agreeing to shell out $1 billion for Prudential Insurance Co. of
America's healthcare operation. The deal will make Aetna the biggest provider of health and dental benefits in the
United States, but that price tag was a bit too fat for traders to digest. Aetna fell $1.63 to $79.19.
Then there's Tel-Com Wireless Cable TV (Nasdaq:TCTV - news), which gained 88 cents to $13.88 after Ivana Trump
issued an angry statement declaring that she is ''outraged'' by a story in Barron's that the former Mrs. Donald is in
business with ''some highly questionable characters'' with a ''past history of stock-market shenanigans.''
Trump, who is lending her unique brand of cachet to the Tel-Com's online shopping service, insisted that she has
''always been a straight shooter'' and has ''an impeccable reputation.'' She said that, as a Tel-Com shareholder,
she holds the company's management ''to the highest level of responsibility and integrity.''
''Company policy,'' Trump added, ''is that any 'questionable' characters who may be discovered within the operation
... will be dismissed immediately.''
There. If that's not good enough for investors, what is? |
