RealTime IT News

Net Stocks Take Dive

Internet stocks extended a plunge that began early in Monday's session following a pessimistic cover story in this week's Barron's.

internet.com's Internet Stock Index fell 56.02, or 5.41 percent, to 979.19, the Nasdaq Composite dropped 188.13 to 4610.00 and the Dow Jones industrial average finished up 85.01 to 10680.24.

Merrill Lynch Senior Internet Analyst, Henry Blodget agreed with the article's notion that the majority of today's Internet companies will either fail or consolidate. However, Blodget questioned the methodology applied to the Barron's study.

"While we agree with Barron's overall conclusions, we would caution against wholesale application of the methodology used in the study, which calculates "months till [cash] burnout" for 207 companies by extrapolating Q4 1999 operating losses against the companies' Q4 1999 cash position.

"Depending on the company, there are three potential problems with the methodology: 1) the study uses operating losses (after non-cash items like D&A) as a proxy for cash flow, which is not always appropriate (the key issue is to what degree non-cash income statement items such as goodwill amortization are offset by cash flow statement items, chiefly CAPEX and change in working capital) 2) Q4 1999 losses for some companies were higher than we expect them to be going forward-i.e., some are on the path towards profitability; and 3) many of the companies have returned to the capital markets for financing already this year, financing that significantly has significantly increased their cash positions and in many (not all) cases will carry them to profitability" wrote Blodget in a note to clients.

CDNow (CDNW) lost 1-1/8 to 5-5/8. Barron's put the company on its list of Internet firms likely to run out of cash before year's end. Barron's reported the company has less than one month's cash remaining. However, the company issued a statement disputing the report, saying it has enough cash to last at least six months.

Also lower was Priceline.com Inc. (PCLN) , down 12-5/16 to 77-11/16. Barron's reported the company may face a new roster of competitors, including the Hilton and Hyatt hotel chains which are reportedly considering launching a new booking site.

Expedia (EXPE) gave up 1 to 23-5/8 and Travelocity (TVLY) lost 2-1/8 to 41-1/2.

Purchase Pro (PPRO) fell 22-1/8 to 129-1/4 and America Online Inc. (AOL) rose 2-3/16 to 66-15/16. The two companies teamed to support business-to-business transactions on AOL's network.

Yahoo! Inc. (YHOO) added 57/64 to 172-1/64. The company has filed with the Securities and Exchange Commission to raise its minimum number of outstanding shares to 900 million and as high as 5 billion.

Ariba Inc. (ARBA) lost 17-1/4 to 248-15/16 and Neoforma (NEOF) added 1/8 to 29-5/16. The two companies announced plans to create a Web portal that will match buyers and