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RealTime IT News

Fasten Your Seat Belts - It's Earnings Season

In my last column titled Net Value," I talked about revenue growth being the most important metric for Internet investors at this point in time. This will likely remain true in the near-term.

Still, there are signs that investors are tiring of Internet companies' seemingly endless expenditures and widening losses. Take for example the trials and tribulations of Amazon.com (AMZN).

The leading etailer pre announced fourth quarter sales of $650 million, far eclipsing last year's -- as in 12 month -- total sales of $610 million. The company, however, issued an earnings warning noting that the extremely strong sales would again not result in smaller losses. The company will continue its enormous investments in marketing, distribution, and customer service. Shares tumbled 12-3/16 to 69-3/4 and by Tuesday's close were trading at 66-3/4, down 41 percent from the $113-1/2 high reached only last month. Funny thing is, Amazon's growth strategy is unchanged -- and investors know it. So what's up (or should I say down), with the stock? And who is doing it right?

Yahoo! Inc. (YHOO) reported earnings on Tuesday, positively surprising the street for the 14th straight quarter. Revenues reached $201 million for the quarter and grew 140 percent to $588 million on the year. Oh yeah, Yahoo! also reported fourth quarter net income (PROFIT!) of $57 million. Earnings per share came to 19 cents, 4 cents better than analysts expected.

Other Internet companies to report positive surprises: Ariba (ARBA) reported first quarter sales of $23.5 million. The B2B software procurement company's loss was $0.07 per share, 4 cents better than the street's expectations. Juno Online Services (JWEB) beat fourth quarter expectations by 10 cents a share, posting a loss of 45 cents.

But while the shares of Yahoo! may have plunged 39-13/16, or 10 percent, to 357-9/16 in Wednesday trading, some analysts and investors remain bullish.

"Yahoo! reported another great quarter, one that was stronger than it looked first crossing the tape. While revenue and EPS did not blow away the whisper numbers, the strength of the fundamental business drivers - audience, commerce, advertising and communications - suggests another great year in 2000" wrote Merrill Lynch analyst, Henry Blodget in a note to clients.

Yahoo! has historically run up prior to earnings... fallen after the actual announcement which has always been positive... only to rise again shortly there after.

"Q4 was operationally fabulous but investors might have been expecting bigger numbers. As is YHOO's pattern, we think the stock could show some weakness over the next month or so. We think Yahoo! ends 2000 at 50 percent + higher levels than today, however, and we reiterate our Buy-Buy rating," added Blodget.

That being said, Internet investors should be aware of an important development taking place. That is, the seasonality of Internet stocks, especially consumer oriented issues such as portals and etailers. A lot of the momentum and valuations given to these stocks' is from the three business-to-consumer (B2C) growth drivers: 1) percentage growth of new online users, 2) total e-commerce dollars spent and 3) total advertising dollars spent. Naturally, these curves fall after the winter and holiday seasons. As the temperature gets warmer, less people are online (school is out etc.), which me