ISDEX Searches For Sustained Rally

It’s been a common scenario all summer: Internet stocks put together several
strong trading sessions that hint of a comeback, only to see momentum
dissipate within days – and sometimes hours.

So it goes this week with’s Internet Stock Index, which gained
8.5% in trading from July 26 through Wednesday, despite backsliding in the
past two days.

The reversals of Tuesday and Wednesday come as networking equipment giant Cisco Systems , the
largest and most important of all ‘Net players, once again beat street
estimates with Q4 earnings of $1.2 billion, or 16 cents per share.

In a time when many Internet companies issue press releases bragging about
growing quarterly revenue to $8 million or so, Cisco’s sales figures almost
defy comprehension. The $5.72 billion in fourth-quarter sales represent a
60% increase over the year-ago quarter.

Not only that, Cisco’s Q4 revenue numbers alone exceed the market
capitalization of more than 90% of all Internet companies. And CSCO’s own
market cap of about $460 billion is nearly four times that of the
second-biggest Internet company, America
, which is valued at $119 billion.

Yet even Cisco’s upward momentum was short-lived since Q4’s report came out
after the market closed Tuesday. While shares rose 3.5% Wednesday to finish
at $67.81, by early Thursday afternoon they had dropped 5.5% to $64.13,
slightly below pre-earnings prices.

Still, with an 11.3% gain for the week ended Wednesday, Cisco is one of a
dozen ISDEX members to post double-digit gains. Overall, 30 of the 50 ISDEX
stocks were up this week, with Net2Phone breaking
even and the other 19 losing ground.

Let’s look quickly at the main movers in the index this week:

Juniper Networks ,
up 30.5% – Cisco’s chief rival in the high-speed router market, Juniper
Networks saw its shares rise five days straight through Wednesday. For the
year to date, Juniper has gained 192%; only wireless access provider has a
better YTD stock performance among Internet companies.

Why is the market supporting a direct competitor to 800-pound gorilla Cisco?
There are several reasons, including general bullishness about the
infrastructure sector (as evidenced by the recent moonshot IPO of terabit
router maker Avici Systems ).

But JNPR has gone a step further, proving it can successfully battle with
Cisco for customers. Juniper’s Q2 earnings report released on July 13 showed
revenues of $113 million and earnings of $28.6 million, or 8 cents per
share. It was the third consecutive quarter of profitability for Juniper,
which by the end of 1998 had only two customers and $3.8 million in total

Portal Software , up
27.5% – Shares of the business infrastructure software provider rebound from
a 34% plunge in the last two weeks of July. Since closing at $47.13 on Aug.
2, PRSF shares finished as high as $62 on Monday before easing slightly.

In general, Portal has been moving in the same direction of the market this
week. The extra altitude may be due to investor anticipation of next week’s
earnings report; in May, Portal reported its first quarter of operating

Intraware , down
24.6% – It’s pretty much over for Intraware, the online marketplace for
Web-based software and services. Shares have essentially vaporized, falling
92.6% since Dec. 31 – par for the course for an e-tailer, but abysmal even
for the hard-hit e-commerce stocks. The company’s market cap is now abou

$161 million, probably less than Cisco’s petty cash fund.

I still can’t believe someone hacked into one of my stories in early January
and, as a cruel practical joke, added ITRA to my list of Internet stocks to
watch this year.

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