Net Stocks Take Dive

Internet stocks extended a plunge that began early in Monday’s session following a pessimistic cover story in this week’s Barron’s.

internet.com’s Internet Stock Index fell 56.02, or 5.41 percent, to 979.19,
the Nasdaq Composite dropped 188.13 to 4610.00 and the Dow Jones industrial
average finished up 85.01 to 10680.24.

Merrill Lynch Senior Internet Analyst, Henry Blodget agreed with the
article’s notion that the majority of today’s Internet companies will either
fail or consolidate. However, Blodget questioned the methodology applied to
the Barron’s study.

“While we agree with Barron’s overall conclusions, we would caution against
wholesale application of the methodology used in the study, which calculates
“months till [cash] burnout” for 207 companies by extrapolating Q4 1999
operating losses against the companies’ Q4 1999 cash position.

“Depending on
the company, there are three potential problems with the methodology: 1) the
study uses operating losses (after non-cash items like D&A) as a proxy for
cash flow, which is not always appropriate (the key issue is to what degree
non-cash income statement items such as goodwill amortization are offset by
cash flow statement items, chiefly CAPEX and change in working capital) 2)
Q4 1999 losses for some companies were higher than we expect them to be
going forward-i.e., some are on the path towards profitability; and 3) many
of the companies have returned to the capital markets for financing already
this year, financing that
significantly has significantly increased their cash positions and in many
(not all) cases will carry them to profitability” wrote Blodget in a note to
clients.

CDNow (CDNW)
lost 1-1/8 to 5-5/8. Barron’s put the company on its list of Internet
firms likely to run out of cash before year’s end. Barron’s reported
the company has less than one month’s cash remaining. However, the company
issued a statement disputing the report, saying it has enough cash to last
at least six months.

Also lower was Priceline.com Inc. (PCLN)
, down 12-5/16 to 77-11/16. Barron’s reported the company may face a
new roster of competitors, including the Hilton and Hyatt hotel chains which
are reportedly considering launching a new booking site.

Expedia (EXPE)
gave up 1 to 23-5/8 and Travelocity
(TVLY)
lost 2-1/8 to 41-1/2.

Purchase Pro (PPRO)
fell 22-1/8 to 129-1/4 and America Online
Inc.
(AOL)
rose 2-3/16 to 66-15/16. The two companies teamed to support
business-to-business transactions on AOL’s network.

Yahoo! Inc. (YHOO)
added 57/64 to 172-1/64. The company has filed with the Securities and
Exchange Commission to raise its minimum number of outstanding shares to 900
million and as high as 5 billion.

Ariba Inc. (ARBA)
lost 17-1/4 to 248-15/16 and Neoforma
(NEOF)
added 1/8 to 29-5/16. The two companies announced plans to create a Web
portal that will match buyers and

sellers of medical equipment.


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