ISDEX Falls Into October

Despite a Wednesday rally that saw 32 of its 50 members gain, it was another gloomy week for’s Internet Stock Index and tech stocks in general as Q3 earnings fears continue to haunt the market.

The ISDEX fell 3.9% in the week of trading ended Wednesday, slightly worse than the Nasdaq’s 3.6% drop. For the year, the ISDEX is down 16.2%.

Only eight ISDEX members gained for the week, led by America Online , with a 9.6% advance; Internet Security Systems , up 7.5%; Check Point Software Technologies (7.3%); and WebMD (7.1%).

The week’s big losers were DoubleClick , down 23.1%; BroadVision (-22.4%); and TIBCO Software , one of seven new ISDEX members (-22.0%).

Here’s how the six other ISDEX newbies performed in their debut:          -1.7%
Wireless Facilities    -2.7%
Sycamore Networks      -2.8%
Terra Networks, S.A.   -8.6%
Liberate Technologies  -9.9%
Aether Systems        -14.3%

Though AOL wasn’t Wednesday’s biggest gainer, the decision by Warner Music and EMI to call off their merger pushed AOL shares to $61.40 by noon Thursday, a gain of 10.9% since Tuesday’s close.

AOL intends to merge with Warner’s parent company, Time Warner, but European regulators have threatened to oppose the union because of concerns that Warner and EMI would dominate the market for online music distribution.

Judging by the early ticker reaction, investors clearly believe scuttling the EMI merger removes a major obstacle to the AOL-Time Warner deal. Should AOL manage to hang onto its two-day gain of 11% by the time regular trading hours end Thursday, it would be the first time since July 20 that AOL shares have closed above $60.

As promised in Wednesday’s StockTracker, here’s a quick look at the remaining new additions to the ISDEX:

Sycamore Networks

This Massachusetts-based maker of optical networking equipment sells its products to telcos, ISPs and cable operators looking to offer customers more bandwidth through existing fiber-optic networks.

Since I wrote about Sycamore in late August, shares have dropped below $100 from $141, despite a Q4 report showing sharp revenue growth and a net profit of $18.3 million, or 7 cents per share.

Back in late August, I called SCMR overpriced at 175x trailing 12 months’ revenue of $198 million, but noted that skyrocketing sales soon would make the company’s valuation more attractive, especially if shares fall. Even without the first half of the equation – and we won’t get new revenue numbers from Sycamore until late November – SCMR’s lowered market capitalization of $23.4 billion gives it a valuation of 118x TTM revenue, making it about one-third cheaper than it was six weeks ago.

Terra Networks, S.A.

Spanish telecommunications giant Telefonica owns 66% of Terra Networks, the leading Internet access provider in Spain and one of the top two ISPs in Brazil, Mexico, Chile, Guatemala and Peru.

In a move to marry access with content, Terra is in the process of acquiring Lycos, one of the leading U.S. portals. (LCOS has been removed from the ISDEX because of the pending buyout.)

Terra had $40.6 million in revenues in 1999, posting a slight profit of $1.9 million after losing $4.4 million in 1998.

Lycos, meanwhile, reported revenues of $87.9 million and a net loss of $39.5 million, or 36 cents per share, in the quarter ended July 31. Excluding merger-related and other costs, LCOS had a net profit of 12 cents per share.

Lycos shareholders are scheduled to vote on the proposed merger on Oct. 27. If the d

eal goes through, and there’s no reason to think it won’t, the new company will be known as Terra Lycos.

TIBCO Software

Targeting companies doing business over the Internet, TIBCO sells e-business infrastructure software. Its latest line of products allows companies to connect their existing networks with Web-based industry marketplaces.

In its Q3 report released last week, TIBCO showed revenues of $67.2 million and a net income of $16.4 million, or 7 cents per share, compared to revenues of $24 million and a net loss of $3.9 million, or 3 cents per share, in the year-ago quarter.

News agency Reuters owns 60% of TIBCO, while networking giant Cisco Systems owns 7%.

Wireless Facilities

This San Diego-based company builds wireless networks for companies such as AT&T, Lucent and Motorola.

Through Thursday afternoon trading, shares of WFII, priced at $63.06, are almost exactly where they were when they closed at $62 on Nov. 5, 1999, the date of the company’s IPO. But since peaking at $157.88 on March 6, WFII has dropped 60%.

For the three months ended June 30, revenues increased 228% to $59.4 million from $18.1 million in the year-ago quarter. Net profit was $7.9 million, or 19 cents per share.

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