Investors in Internet stocks this year have been running with the bulls. On April 19 they discovered that bulls have horns as ISDEX fell an average of 18% in one day. The drop from the top prompted scores of experts to appear on CNBC, Bloomberg, etc. and dust off the ‘bubble bursting’ analogy while calling it ‘analysis.’
I strongly believe sometimes the TV folks blow up their inflatable analysts and pull the string every time Internet stocks fall. Sound bytes are always the same with no real numbers or basis to support the opinions. Here’s the part blow up theorists leave out:
Internet stocks this year have gained more than 147% to their highs as gauged by Internet.com’s ISDEX. And even after Monday’s free fall ISDEX was up 74% for the period 12/31 through 4/19. That means the Internet sector handily beats all other indices that we track, Dow and NASDAQ included.
So I believe Internet stocks had some to give back after getting ahead of themselves.
Add to that perhaps the real culprit in the pullback was a glut of new offerings spamming Wall Street. I counted more than 75 “.coms” of one flavor or another trying to go public so far this year, many still in registration (and probably on the edge of their seats watching the market now).
Before we go on let’s see the one-day damage report, April 19 vs. April 18:
internet.com’s ISDEX
who | ticker | 4-19 close | point drop | % drop |
VocalTec | VOCLF | $ 10.25 | $0.19 | 2% |
CheckPoint Software | CHKP | $ 31.38 | $0.06 | 0% |
Axent | AXNT | $ 9.56 | -$0.13 | -1% |
Network Associates | NETA | $ 15.25 | -$0.81 | -5% |
Cisco | CSCO | $ 100.00 | -$5.69 | -5% |
Security Dynamics | SDTI | $ 18.25 | -$1.38 | -7% |
Cyberian Outpost | COOL | $ 14.50 | -$1.63 | -10% |
Preview Travel | PTVL | $ 20.50 | -$2.44 | -11% |
Egghead.com | EGGS | $ 13.50 | -$1.69 | -11% |
eBay | EBAY | $ 154.13 | -$21.88 | -12% |
Earthlink Network | ELNK | $ 60.19 | -$8.56 | -12% |
Broadcast.com | BCST | $ 117.75 | -$17.56 | -13% |
USWeb | USWB | $ 24.75 | -$3.75 | -13% |
Yahoo! | YHOO | $ 163.69 | -$25.50 | -13% |
GeoCities | GCTY | $ 107.50 | -$17.25 | -14% |
iVillage | IVIL | $ 83.50 | -$13.50 | -14% |
Mindspring | MSPG | $ 87.25 | -$14.31 | -14% |
Open Market | OMKT | $ 12.75 | -$2.13 | -14% |
Broadcom | BRCM | $ 60.00 | -$10.13 | -14% |
CyberCash | CYCH | $ 15.88 | -$2.75 | -15% |
Go2Net | GNET | $ 146.75 | -$27.25 | -16% |
Prodigy | PRGY | $ 29.88 | -$5.63 | -16% |
CDnow | CDNW | $ 13.38 | -$2.56 | -16% |
Amazon.Com | AMZN | $ 158.94 | -$31.06 | -16% |
America Online | AOL | $ 115.88 | -$23.88 | -17% |
Concentric | CNCX | $ 70.03 | -$14.53 | -17% |
ISS Group | ISSX | $ 46.75 | -$9.75 | -17% |
Verio | VRIO | $ 51.16 | -$10.84 | -17% |
Lycos | LCOS | $ 75.75 | -$16.50 | -18% |
@Home Network | ATHM | $ 118.94 | -$26.00 | -18% |
CMG Info | CMGI | $ 214.00 | -$46.88 | -18% |
Sportsline USA | SPLN | $ 40.00 | -$9.63 | -19% |
24/7 Media | TFSM | $ 41.00 | -$10.00 | -20% |
Security First Technologies | SONE | $ 91.50 | -$23.13 | -20% |
E*TRADE | EGRP | $ 73.81 | -$18.75 | -20% |
Xoom.com | XMCM | $ 67.50 | -$17.50 | -21% |
Onsale | ONSL | $ 23.88 | -$6.44 | -21% |
Network Solutions | NSOL | $ 70.50 | -$19.25 | -21% | Excite | XCIT | $ 108.50 | -$30.88 | -22% |
PSINet | PSIX | $ 45.50 | -$13.63 | -23% |
Verisign | VRSN | $ 110.00 | -$34.38 | -24% |
Exodus | EXDS | $ 61.38 | -$19.25 | -24% |
RealNetworks | RNWK | $ 128.63 | -$41.88 | -25% |
Infoseek | SEEK | $ 45.63 | -$14.88 | -25% |
Doubleclick | DCLK | $ 104.00 | -$34.06 | -25% |
Infospace.com | INKT | $ 89.00 | -$29.50 | -25% |
Beyond.com | BYND | $ 23.13 | -$7.88 | -25% |
Broadvision | BVSN | $ 39.63 | -$13.63 | -26% |
Inktomi | INSP | $ 85.75 | -$30.50 | -26% |
CNET | CNET | $ 86.00 | -$34.00 | -28% |
TOTAL | $3,497.31 | -$774.81 | -18% | |
AVERAGE | $ 69.95 | -$15.50 | -18% | |
MEDIAN | $ 64.44 | -$13.97 | -22% |
Add on top of that new issues pricing above range and offering more shares, combined with already-public companies doing secondaries and the saturation point was beyond .com in another sense of the word.
Toss in a perfunctory quarterly comment seen in the news last week from Warren Buffett that he doesn’t invest in Internet stocks and voila! correction. Of course Warren explains that he doesn’t invest in Internet stocks because he doesn’t understand the Internet (but he does have a Web site!).
The fact that Buffett doesn’t grasp the i-landscape is not news. What that indicates to me though is if Warren has no clue then what about the scores of investors trying to weed whack their way through the Internet IPO explosion this year. At a basic level many investors don’t know the difference between iTURF (NASDAQ:TURF) and Surf ‘N Turf. Both may taste about the same now.
The question investors now must ask is this: is that the worst of it? Again, put it in context. With a gain of 74% through April 19 I think ISDEX could give up a few more points in selected stocks (not as a group), before a segment of buyers comes in and sees market leaders trading well off their highs.
It’s cyclical. For 5 years now I’ve watched this pattern, analyzed this pattern. Seen the patients running the asylum from time to time (firms trying to go public on wings and prayers). The prudent move to me is examining the market leaders flush with cash and under leveraged vs. their growth. for example, anyone who doesn’t own AOL (NYSE:AOL) may get cold stares from their grandchildren some day.
For now let’s not get too far ahead of the pack or progenitor predictions. I expect the new issue pipeline to siphon off the more speculative deals (a good thing) while the slowdown will again let Wall Street have the chance to get into the numbers and individual outlooks of those firms in the Internet with more than just a Web site.
Of those in registration some of the higher-profile deals could draw attention but I caution investors to not be enamored by glitz and blitz but by nuts and bolts business. Corrections tend to draw out that difference fairly quickly.
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