Smart Investor: Part 2, Re: "? Black Monday ahead?". From the SF Gate. Positive for AOL and YHOO,
TA
===============================================
sfgate.com
Internet stocks may not have shaken out enough, analysts say
PATRICIA LAMIELL, AP Business Writer Friday, January 22, 1999
(01-22) 16:58 PST NEW YORK (AP) -- Investors sold Internet stocks this past week as feverishly as they had bought them for months, and the selloff wasn't pretty.
As Internet stocks were bouncing back Friday morning from a pummeling Wednesday and Thursday, some market analysts suggested that the shakeout was over. But the rally fizzled in a few hours, and sellers re-emerged late Friday to push down the Nasdaq index, which is laden with Internet and other technology shares.
The performance of Amazon.com, the Internet bookseller that has been a darling of Wall Street, is typical of the wild ride. Since peaking at 199 1/8 during trading Jan. 8, it had plunged 53.5 percent by the time it bottomed out during Thursday's session at 92 9/16. It ended the week at 123.
Some Wall Street analysts emerged from the fray convinced that investors had restored some sanity to the market for such high-flying Internet stocks. The days are over, these analysts said, when companies could make a killing in the stock market by tacking ''.com'' to their name or throwing up a Web site.
From now on, investors will be much more discriminating, said Kris Tuttle, an Internet analyst at SoundView Financial Corp. He said the market needed ''a boiling of the water to separate out some of these really marginal, if not completely ridiculous, Internet stocks, which have no real business model, no real advantage.''
Two companies that emerged victorious from last week's fray were Excite Inc. and At Home Corp., which announced Tuesday that they would merge. The deal will combine At Home, a supplier of high-speed Internet connections, with Excite, which runs a popular Web site called a ''portal,'' a place where surfers can connect to other sites and services on the Web.
The merged company would give Web users a vast array of tempting products, as well as current news and chat rooms, and it will directly challenge the daddy of that business, America Online Inc. AOL's stock dropped 4.2 percent during the week, losing 6 1/8 to close at 140 3/8.
On Friday, The Wall Street Journal reported that AT&T was considering selling its Internet access service to At Home. That deal, if it happens, would combine At Home's access to people's homes through cable connections with the 1.3 million residential customers of WorldNet, AT&T's telephone dial-up Internet service, which also has 1 million business customers.
At Home's shares ended Friday's session at 101, up 3 5/8 on the day and down only 1 point for the week. Excite ended up 2 at 87 7/8, up 20 3/8 for the week, or a gain of 30 percent.
One lesson from all this could be that successful Internet companies will be those that offer a broad range of information and services to a loyal base of customers who will keep returning, Tuttle said.
These companies will make money not just on monthly access fees and advertisements, which is where the bulk of their revenues come from now, but from transactional fees paid by customers.
Which companies might win?
''I can think of only two that have brand-name recognition: AOL and Yahoo!,'' said Joseph Battipaglia, chief investment strategist at Gruntal & Co.
But while AOL has built a community of dedicated users through its e-mail service and chat rooms, ''Yahoo! doesn't have access to customers other than the Internet, which can be fickle,'' Tuttle said. <b/>
Tuttle said online auction companies like e-Bay Inc., uBid, Inc., ONSALE, Inc., and Cyberian Outpost Inc., which sell products that could be bought at the mall, are also vulnerable.
And Amazon.com, although its stock is trading at an astoundingly high 453 times projected 1999 earnings, is vulnerable to any successful retailer that wants to start selling books on the Internet, Battipaglia said.
''What would it take for Wal-Mart to hire some Internet whiz and sell bicycles, hosiery and books through that channel? You don't have an allegiance to Amazon. You just want to buy your books cheap.''
Tom Rhinelander, an Internet analyst at Forrester Research, believes Internet companies, like the rest of the technology sector, will eventually bow to the Darwinian laws of Wall Street and hook up with each other to form a few big players.
''The Internet was supposed to be this great leveler,'' Rhinelander said. ''But what we've seen is that it's not that way at all.''
On Friday, the Dow average fell 143.41 to 9,120.67, ending down 219.88 for the week.
|
