For many Internet investors, the upside of this spring’s ‘Net stocks
meltdown has been the opportunity to buy shares at rock-bottom prices.
Bargain-hunters know the drill. Find the hidden gems buried in the rubble,
then strap on your seat belt for the lucrative rocket ride north once the
rest of the market catches on to your little secret.
There certainly is plenty of rubble for investors to sift through. Of the
299 Internet stocks that have been trading since the beginning of the year,
79 have lost at least 70% their value through the first two quarters. (See
Friday’s StockTracker Daily for the full report.) That means about one
out of every four ‘Net tickers are trading at unbelievably huge discounts.
But investors would have to search long and hard to find any promising
stocks among the list of biggest market meltdown victims. The vast majority
of these stocks are from me-too companies with poor business models, little
revenue and continued losses.
While the impulse to dig deep for the best bargains is understandable –
especially since the days of making a killing in the IPO market are over for
now – investors would be better off focusing on companies with superior
fundamentals (strong revenue growth, profitable, market leaders), even if
their stocks aren’t on the cheap.
The truth is that nearly all of the Internet stocks that were down 70% or
more in the first half of the year aren’t going to be bouncing back. In the
great shakeout process that follows a bursting bubble, they’ve already been
shaken out. For most, now it’s a matter of waiting for the end, be it
bankruptcy or buyout.
Think Im being too pessimistic? Look at the list of biggest losers. No. 1
is Talk City, which
develops online chat communities for businesses and individual ‘Net surfers.
Down 94% in the first two quarters, TCTY has an accumulated deficit of $73.5
million since 1996. Net revenue in Q1 was $3.5 million, against a net loss
of $10 million. Its market cap is $34 million, shares are trading below
$1.50 and competitors include America Online, Yahoo! and Lycos. This one has
comeback written all over it!
The next three biggest losers are e-tailers: insurance products seller InsWeb (down 91.5%),
mailing and shipping services provider E-Stamp (91.4%) and
online drugstore PlanetRx.com (89.5%). InsWeb has laid off staffers and is relocating from
Silicon Valley to Sacramento; not exactly a high-tech mecca, but the rents
are cheaper. E-Stamp has revamped its business model in a bid to stay alive
following a 1999 net loss of $55.4 million. And PlanetRx.com lost $98
million last year and announced layoffs in June.
Anyone want to lay down some bets on those long-shots? I didn’t think so.
I’m not saying there aren’t a handful of companies in the 70%-and-worse club
that won’t rebound. Ad services leader DoubleClick (down
70.6%), though it’s losing money, has strong revenue and dominates its
market. And I still think it’s too early to write off eToys (down 79.8%); since
Christmas several competitors have closed shop.
There may some others the market currently is mistakenly missing or
dismissing, but I’m having trouble finding them. If you seen any hidden gems
in the basement, pass along their ticker symbols and why you like them.
After you’ve loaded up on shares, that is.
