WSJ Lead Story (as of now):
MANY INTERNET-RELATED stocks are soaring on the slightest of news about online-retailing efforts. But analysts warn that companies touting their Web prowess this year may be touching off too much optimism among investors.
Web Sales May Be Lifting
Share Prices Too Easily
By AARON LUCCHETTI
Staff Reporter of THE WALL STREET JOURNAL
Make widget, sell widget, add Web site.
Stock prices for a growing number of companies are soaring on the
burgeoning enthusiasm about the Internet and online shopping. Since
November, brisk holiday sales on the Web have sent investors hunting for
any company looking to expand its presence on the popular medium.
The impact has been felt in just about every, and any, Internet-related
stock. The Chicago Board Options Exchange's Internet Index set a new
high Monday at 426.96 and has doubled since mid-October. (Tuesday the
index was down 11.4 to 415.56.) The market capitalization of Charles
Schwab, which owns the largest online broker, jumped over securities
behemoth Merrill Lynch this week. And after the close Thursday, as
previously announced, America Online will join the blue-chip Standard &
Poor's 500-stock index, further raising the demand for the Internet-service
provider's shares.
What's more, a number of obscure small stocks are surging on the news of
Web efforts. Heavyweight motorcycle manufacturer Bikers Dream more
than doubled to 6 27/32 on the Nasdaq Stock Market as news reports
about the company's planned Internet sales channel spread. Catalog
specialty-retailer SkyMall has tripled since Christmas, after it announced
faster-than-expected sales growth on its Web site. And Active Apparel
Group, a tiny sportswear manufacturer, has increased by a factor of 15
after reporting new Internet retailing links. Tuesday, the New York
company's stock rose 7 1/2 , or 65%, to 19.
"A lot of stocks are moving up on
announcements of interest in e-tailing," says
Keith Benjamin, Internet analyst at
BancBoston Robertson Stephens. Fine-art
auctioneer Sotheby's, for example, jumped
6% this month when a Merrill Lynch analyst
mentioned the company's Internet prospects.
Retailer Sharper Image's Web site was mentioned in news reports after
Thanksgiving, helping the stock to an all-time high of 21 3/16 Nov. 30.
But companies touting their Web prowess this holiday season may be
touching off too much optimism among investors, analysts warn. "Every
day, people give me another new name" of a company that is getting on
the Internet, says Mr. Benjamin. "But I don't think all of these companies
will be able to deliver the numbers to support their stock price."
In fact, many of the companies surging on Web news are retailers that
have been around for years trading at low prices because of relatively
unglamorous businesses. SkyMall, based in Phoenix, went public in 1996,
and never traded much higher than 10 before surging on the Internet news
to 40 3/4 this week.
While "the Web is a viable business alternative, to assume that a business
will dramatically increase because it has a Web site is extraordinarily
premature," says Keith Mullins, a growth-stock analyst at Salomon Smith
Barney. "E-Commerce is not a simple business; it's more challenging than
retailing because it integrates the demands of retail and technology."
In fact, stock prices of many Internet retailers face hurdles after the initial
proclamations about Web ventures. For one thing, the volatility in the
stock surges as momentum-based investors and day traders quickly buy
and sell shares. And many of the stocks have faded as the companies run
into competition and damped enthusiasm.
At first, "they seem to be caught up in a frenzy," Mr. Benjamin says. But
later, investors dump the stocks after realizing the company "is a laggard in
a competitive field," or happens to be in a business that is "not a huge
market."
K-tel International shows what can happen to an investor who jumps into
a stock as soon as it goes online. In April, the stock more than quadrupled
after the music-marketing company launched an online service, but by
November, nearly all of that gain had disappeared. A similar gain in K-tel
stock prompted by marketing alliances with Playboy Enterprises' Playboy
Online and Microsoft slipped away last month after the company ran into
problems maintaining Nasdaq Stock Market listing requirements.
The music company isn't alone. Computer-retailer Egghead.com,
food-products company Zapata, herbal- and nutritional-supplement
concern CVF Technologies and books retailer Books-A-Million have all
fallen off recent highs hit after Internet announcements.
"It's a ton easier to issue a press release than it is to run a successful online
business," says Lise Buyer, Internet analyst for Credit Suisse First Boston.
"Those who have questions should study the case of well-known and
well-run Barnes & Noble, which is having a hard time" competing online,
she says.
Also, consumers often bring their dollars online at the expense of
companies' bricks-and-mortar business. In many cases, the retailer's site
introduction "is a defensive maneuver" that doesn't bring in new revenue,
says Nicole Vanderbilt, senior analyst at Jupiter Communications, New
York.
SkyMall wants to use the Web to expand its existing clientele that
currently orders gift items from the company's airplane catalogs. But so
far, the Internet sales boom hasn't led to greater-than-expected overall
sales growth. "There has been some cannibalization of orders from the
planes," says Robert M. Worsley, the company's president and chief
executive.
By 1999, Mr. Worsley says he hopes SkyMall's Internet business will
grow to about 20% of the company's sales. Overall, Jupiter projects that
Internet retailing will grow to $41 billion in 2002 from about $7 billion this
year. But even optimistic analysts say the first quarter of 1999 may be
tough, as brisk sales in the fourth quarter create tough comparisons. Wall
Street is also expected to serve up plenty of Internet IPOs next year to
satisfy investors' hunger for the speculative stocks.
For now, though, many investors are more willing to buy on the first news
of Net movement than they were a few months ago. In January, when
Egghead initially announced its plan to move from computer stores to the
Internet, the stock actually fell on the day. Today, however, such news is
greeted more warmly as individual investors see Internet-stock gains as
contagious and irresistible. "You can't say 'don't buy' because there's likely
to be a greater fool out there" who will take it at a higher price, Credit
Suisse First Boston's Ms. Buyer says.
Tuesday's Market Activity
Small-capitalization stocks and Nasdaq issues posted modest gains, but
both sectors of the market underperformed blue-chip names.
Technology stocks, which have recently accounted for much of the
leadership among Nasdaq shares, took a breather following the
mind-boggling run-up in recent sessions.
The Russell 2000 index of smaller
companies added 2.13, or 0.5%, to
410.41. The Nasdaq Composite
index edged up just 1.47, or 0.07%,
to 2181.77, but nevertheless closed
at another record high.
National Discount Brokers surged
17 1/2 to 31 1/2 on the New York
Stock Exchange after reporting late
Monday second-quarter net income
of 42 cents a diluted share,
compared with 16 cents (and with income from continuing operations of
18 cents) a year earlier. Shares of the Jersey City, N.J., online-trading
company hit a 52-week high of 33 1/2 intraday.
Valuevision International jumped 5 1/8, or 82%, to 11 3/8. Late Monday,
the Minneapolis company said pre-Christmas December sales of its
television home-shopping operation rose 70%, pre-Christmas
fourth-quarter sales rising more than 50%.
Geron rallied 2 3/16, or 22%, to 11 15/16. The Menlo Park, Calif.,
company said research published in the Jan. 1 issue of Nature Genetics
shows that telomerase doesn't cause cellular changes linked with cancer.
Geron holds several patents relating to its work on telomerase. Some
scientists had theorized that telomerase itself could cause cancer.
ADAC Laboratories plunged 5 1/4, or 19%, to 21 7/8, hitting a new
52-week low of 16 7/8 intraday as it said it will restate its fiscal 1996,
1997, and 1998 financial results after a review of its accounting principles.
The Milpitas, Calif., supplier of radiation-therapy planning systems, said it
expects the restatement will have a "material adverse impact" on its results
for fiscal 1996 and fiscal 1997, and said earnings for fiscal 1998 may be
somewhat less than previously reported, depending on the outcome of the
ongoing review.
Mackie Design, a Woodinville, Wash., maker of audio mixers, fell 1/2, or
7.3%, to 6 3/8 ; it said fourth-quarter revenue and earnings will be lower
than expected because of weak domestic and international economic
conditions. The stock hit a 12-month low of 5 1/4 intrasession.
Shares of Claire's Stores, a Pembroke Pines, Fla., retailer, shot up 1
11/16, or 9.1%, to 20 3/16 on the Big Board. Scott & Stringfellow raised
its investment rating on the company to strong buy from hold.
Cost Plus lost 6 1/2, or 18%, to 29 1/2 . Piper Jaffray said the Oakland,
Calif., retailer's December same-store sales came in between 1% to 2%
ahead of a year earlier, which was below plan. Piper did say the
company's fourth-quarter earnings are still on track.
A disappointing third-quarter earnings outlook from Halter Marine sent
those shares off 7/8, or 16%, to 4 3/4 on the American Stock Exchange.
The Gulfport, Miss., company said results for the quarter ending Dec. 31
will show a marginal profit, compared with Wall Street's net income
consensus view of 26 cents a share. Halter Marine builds and repairs
vessels, mobile offshore rigs, and engineered products.
Two shareholders of Cenit Bancorp Norfolk, Va., seek a stockholder
vote to pursue an immediate sale, merger or other acquisition, helping the
bank holding company's shares up 1 1/4, or 6.7%, to 20.
Network Equipment Technologies dropped 2 1/16, or 16%, to 11 3/16
on the Big Board. Late Monday, the company said it sees third-quarter
net income below analysts' expectations, citing weak Asian markets and
lease transactions.
Initio rocketed higher by 3 3/16, to 4 11/16. The specialty mail-order
company said it plans to use $500,000 of private-placement funding to
promote its Deerskin catalog Internet site and develop a site for its Joan
Cook catalog. Shares of the Carson City, Nev., company hit a 52-week
high of 5 1/8 intraday.
National market volume of 789 million shares and total volume of 911
million shares compares with 757 million and 862 million, respectively, on
Monday.
--Thomas Granahan |
