Internet Shakeout Impacts ISDEX

This year has brought dramatic changes to the Internet landscape, with formerly high-flying ‘Net stocks crashing back to earth as investors began their first serious effort to sort winners from losers.

Judging from September’s serious downturn, which thus far has extended to the fourth quarter, this shakeout process is far from over. As noted in yesterday’s StockTracker, 80% of all ‘Net stocks fell in Q3.

The goal of’s Internet Stock Index, or ISDEX, is to provide an accurate reflection of the growing Internet economy. Thus, we focus both on ‘Net companies that are emerging as market leaders and those firms which help us present a cross-section of the many sectors comprising the ‘Net universe.

To keep pace with the rapidly evolving Internet economy, seven companies are being added to the 50-member ISDEX, with a corresponding seven being removed.

Coming on board the ISDEX are:

AETH 	Aether Systems
LBRT	Liberate Technologies
SCMR	Sycamore Networks
TRRA	Terra Networks
WFII	Wireless Facilities

They replace:

ITRA	Intraware
IIXL	iXL Enterprises
LCOS	Lycos
OMKT	Open Market
PRGY	Prodigy Communications

Over the next two days we’ll introduce the new ISDEX members:

Aether Systems

Based in Maryland, Aether Systems provides wireless data services and software for mobile devices. The company is targeting a number of markets, including software products, field sales, healthcare, wireless commerce, mobile government and messaging.

Aether has purchased a half-dozen companies this year, and together with 3Com formed OmniSky, a wireless e-mail service provider that went public in late September.

In the first six months of this year, AETH had $16.2 million in revenue, compared to $787,000 in the year-ago period. Net loss for the first two quarters of 2000 were $123.2 million, or $3.65 per share.

Trading at $94.19 on Wednesday afternoon, AETH is up 94% from its Oct. 21, 1999 first-day closing price of $48.44. Aether Systems has a market capitalization of $3.6 billion.

With some valuable Web real estate of its own, owns 90% of the market for homes listed on the Internet. The company runs Web sites for buyers and sellers of homes ( and new homes (, as well as separate sites containing information on apartments, home improvement and moving.

HOMS derives its revenue from advertisers and subscriptions from housing industry professionals. It has a five-year content, e-commerce and distribution alliance with America Online.

The company had revenues of $88.8 million in the first half of the year, and a net loss of $12.8 million during that time. But losses were reduced to $2.8 million, or 3 cents per share, in Q2, versus $10 million, or 14 cents per share, in the first quarter.

HOMS went public on Aug. 5, 1999, closing at $22.75. By Wednesday afternoon, shares were trading at $41.88, nearly double their debut closing price. Market cap is $3.4 billion.

Liberate Technologies

This company got its name from its mission: To free users from their reliance on Microsoft software. Liberate makes Internet access software for set-top boxes, smart phones and other Web devices. The software is designed to enable users to run applications off the Internet. In particular, the company has high hopes for its software that allows users to surf the Web and play interactive games on their TVs.

Liberate has attracted the financial backing of a number of industry heavyweights, including AOL, Hambrecht & Quist, Sun Microsystems and Oracle (LBRT was originally known as Network Computers, an Oracle spinoff). In July, Ci

sco Systems invested $100 million in Liberate.

In the fiscal year ended May 31, LBRT had revenues of $28 million and a net loss of $80.8 million, or $1.14 per share. In the quarter ended Aug. 31, LBRT’s net loss was $88.2 million, or 90 cents per share, compared to a net loss of $12.5 million, or 17 cents per share, in the same quarter last year, while revenues grew 78% to $9.4 million.

Shares of Liberate were trading Wednesday afternoon at $25.69, or 152% above their July 28, 1999 first-day closing price of $10.19. Market cap is $2.3 billion.

On Thursday, we’ll look at Sycamore Networks, Terra Networks, TIBCO Software and Wireless Facilities.

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