Net Stocks Cool From Record Pace

Internet issues fell sharply in Tuesday trading ahead of earnings results
from a few giant Internet players.

internet.com’s Internet Stock Index dropped 46.58, or 5.31 percent, to
831.20, the Nasdaq Composite plunged 128.48 to 3921.19 and the Dow Jones
industrial average gave up 61.12 to 11511.08.

Leading online portal, Yahoo reported
earnings of 19 cents a share, 4 cents better than expected and announced a
2-for-1
stock split. Yahoo! Inc. (YHOO)
slumped 38-11/16 to 397-3/8.

Earnings are also due out from E*Trade Trade Group and B2B e-commerce
network provider, Ariba. The
AOL-Time Warner merger remained the buzz on Wall Street.

Most analysts attributed Tuesday’s decline to the fact that market observers
had digested the AOL-Time Warner merger and were deciding what the
appropriate valuation should be for each.

Merrill Lynch analyst, Henry Blodget believes the AOL-TWX merger is a smart
move as long as the king of new media and king of old media can synergize
and execute.

“Fundamentally, we think the AOL Time Warner transaction is a
smart, strong combination. The key benefits for AOL, in our opinion,
include 1) cable access, 2) multiple channels for cross-selling, 3) revenue
diversification, and 4) a dominant global media presence (which should help
the company build its international business). The big question for
shareholders is whether the market will accord the new entity a traditional
valuation or an ‘internet valuation.’

“Our answer to this is not surprising:
probably somewhere in between. We believe the stock of AOL Time Warner
probably has both less upside and less downside than prior to the merger
(law of large numbers vs. more diversification). Where the stock trades in
this range, in our opinion, will be a function of management’s ability to
instill confidence in the Street (which we believe will be high). If the
merger goes well, as we believe it will, the stock could trade at the high
of this range, or $90-$100 in a year,” wrote Blodget in a note to clients.

Shares of America Online Inc. (AOL)
fell 7-5/8 to 65. Time Warner Inc. (TWX)
lost 7-1/4 to 85.

One of the sector’s biggest gainers was Kana Communications Inc. (KANA)
, up 19 to 216. The e-mail management software maker announced plans for a
2-for-1 stock split.

Juno Online Services Inc. (JWEB)
climbed 3-5/8 to 41-5/8. The Internet provider reported a wider
fourth-quarter loss, although its subscriber base more than doubled.

Ariba Inc. (ARBA)
lost 3 to 191. The B2B e-commerce company will be reporting earnings later
Tuesday. Analysts expect a 12-cent loss compared to a 7-cent loss a year
ago.

E*Trade Group Inc. (EGRP)
gave up 1-3/8 to 26-11/16. The online broker is also reporting earnings
Tuesday. Analysts are expecting a 20-cent profit.

Priceline.com Inc. (PCLN)
slipped 1-7/16 to 52-13/16. The “name-your-price” retailer set a one-day
sales record of $3 million on Monday.

Infospace.com Inc. (INSP)
jumped 11/16 to 115-3/16 after being sel

ected by Vodafone AirTouch to
deliver content to its wireless customers worldwide.

USinternetworking Inc. (USIX)
rose 5-5/16 to 51 after it was rated a “buy” by J.P. Morgan Securities who
initiated coverage Tuesday.

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