ISDEX Slowly Turns North

There were more hopeful signs this week that Internet stocks may have found a bottom. Thanks to a huge marketwide rally on Tuesday,’s Internet Stock Index, or ISDEX, gained 2.5% in the five days of trading ended Wednesday, and the Nasdaq rose 3.2%.

While that’s certainly welcome news for ‘Net investors, the big picture remains bleak. Through Wednesday, the ISDEX is down 27.8% from its Dec. 31 close of 860.35; the Nasdaq, meanwhile, has fallen 18.1%.

For the first time since summer, the vast majority of ISDEX members posted weekly advances, with 33 of the 50 stocks climbing. Despite these gains, however, all but four ISDEX stocks have lost ground in the past month’s trading. (The charmed four are: RSA Security , up 10.4%; Juniper Networks , 9.2%; Internet Security Systems , 8.4%; and , 1.1%.)

Only those marchFIRST shareholders who jumped in during the past week could derive much cheer from MRCH’s ISDEX-leading 47.8% gain. The Web consulting services player is merely bouncing off a new all-time low closing price of $4.19 set on Oct. 25.

Even with the surge, MRCH is down 52% since Oct. 20, and the comeback is more likely due to bargain hunters than true believers, for marchFIRST has committed the cardinal sin of blindsiding the street on the downside. Its announcement last week of an anemic 1 cent per share net profit in Q3 – consensus estimates called for a net profit of 20 cents per share – transformed a steady, months-long decline into a one-day, 59% terror plunge.

MRCH is down 88.5% for the year, with virtually all of its losses coming since mid-March. Given that a) company officials warned last week that Q4 revenues will be well below previous projections, and b) analysts immediately cut their ratings of the battered stock, MRCH isn’t a strong candidate for a sustained rally, this week’s uptick notwithstanding.

DoubleClick , our No. 2 ISDEX gainer with a 30.4% gain, has a similar tale of woe. Shares of the Internet ad services market leader tumbled 31% on Oct. 13 after DCLK issued its Q3 report. Unlike MRCH, DoubleClick met analysts’ projections with a 3 cents per share profit. But some analysts expected more than Q3’s $135.2 million in revenues, and the company’s Q4 forecast of another 3 cents per share net profit fell short of forecasts calling for 5 cents per share.

The real drag on DCLK shares, and the main reason they’ve declined 85% this year, continues to be extreme pessimism among investors regarding the growth of online advertising. There are nagging doubts about the effectiveness of Web ads and, more to the point, grave concerns that the Internet’s pool of paying advertisers will gradually evaporate under the steady heat of cash-burn flameouts.

Several other recent earnings season victims showed double-digit gains this week, including Allaire (29.3%), (16.5%) and RealNetworks (13.8%).

This week’s biggest ISDEX loser is search engine and caching server software market leader Inktomi, which slid 19.8% after the company reported a net loss for its fourth quarter of $8.5 million, or 8 cents per share, up from $6.4 million, or 6 cents per share, in the year-ago period.

But revenues tripled to $78.6 million, and excluding acquisition costs, INKT’s net profit of $8.8 million, or 7 cents per share, topped street estimates of 5 cents per share.

News Around the Web