Now that we’re in the middle of a correction for Internet stocks let’s first go to the numbers and see what the damage report is:
ISDEX ® | 25-May-99 | % change | Point change | % change | |
The Internet Stock Index | close | from | from | from | |
www.isdex.com | 19-May-99 | 19-May-99 | 31-Dec-98 | ||
or 1999 IPO | |||||
ISDEX | 474.73 | -17.1% | -98.20 | 65.6% | |
NASDAQ | 2,380.90 | -6.9% | -177.46 | 8.6% | |
DJIA | 10,531.09 | -2.8% | -305.86 | 14.7% | |
Axent | AXNT | $ 13.00 | 14% | $1.63 | -57% |
Network Associates | NETA | $ 15.19 | 13% | $1.75 | -77% |
Security Dynamics | SDTI | $ 19.75 | -1% | -$0.13 | -14% |
CheckPoint Software | CHKPF | $ 42.06 | -4% | -$1.94 | -8% |
Broadvision | BVSN | $ 43.75 | -5% | -$2.38 | 37% |
CDnow | CDNW | $ 18.38 | -5% | -$1.00 | 2% |
VocalTec | VOCLF | $ 10.50 | -7% | -$0.75 | -7% |
USWeb | USWB | $ 25.75 | -8% | -$2.31 | -2% |
Sportsline USA | SPLN | $ 31.88 | -10% | -$3.38 | 105% |
CyberCash | CYCH | $ 14.00 | -10% | -$1.50 | -7% |
Prodigy | PRGY | $ 24.31 | -10% | -$2.63 | 62% |
Broadcom | BRCM | $ 88.38 | -10% | -$10.00 | 46% |
Cisco | CSCO | $ 104.38 | -10% | -$11.81 | 12% |
PSINet | PSIX | $ 43.88 | -12% | -$6.00 | 110% |
Infoseek | SEEK | $ 42.25 | -12% | -$6.00 | -14% |
Onsale | ONSL | $ 19.69 | -13% | -$2.81 | -51% |
Open Market | OMKT | $ 12.25 | -13% | -$1.75 | 5% |
Verisign | VRSN | $ 111.88 | -13% | -$16.88 | 89% |
eBay | EBAY | $ 163.94 | -14% | -$25.63 | 104% |
America Online | AOL | $ 115.00 | -14% | -$19.06 | 48% |
Lycos | LCOS | $ 96.50 | -15% | -$16.44 | 74% |
Cyberian Outpost | COOL | $ 11.81 | -15% | -$2.13 | -57% |
Network Solutions | NSOL | $ 60.63 | -16% | -$11.25 | -7% |
Amazon.Com | AMZN | $ 111.56 | -16% | -$21.06 | 4% |
Verio | VRIO | $ 52.50 | -17% | -$10.56 | 135% |
Exodus | EXDS | $ 70.19 | -17% | -$14.44 | 118% |
Broadcast.com | BCST | $ 95.50 | -18% | -$21.06 | 150% |
CNET | CNET | $ 97.50 | -18% | -$22.13 | 279% |
E*TRADE | EGRP | $ 45.06 | -19% | -$10.45 | 285% |
Yahoo! | YHOO | $ 126.94 | -19% | -$29.88 | 7% |
Egghead.com | EGGS | $ 10.75 | -19% | -$2.56 | -48% |
GeoCities | GCTY | $ 85.38 | -19% | -$20.38 | 154% |
CMG Info | CMGI | $ 191.50 | -20% | -$47.94 | 260% |
Earthlink Network | ELNK | $ 49.38 | -21% | -$12.75 | -13% |
Mindspring | MSPG | $ 69.00 | -21% | -$18.13 | 13% |
Inktomi | INKT | $ 86.00 | -22% | -$24.38 | 33% |
Go2Net | GNET | $ 97.25 | -22% | -$27.75 | 450% |
Excite | XCIT | $ 116.94 | -24% | -$37.25 | 178% |
Beyond.com | BYND | $ 18.13 | -24% | -$5.81 | -13% |
Preview Travel | PTVL | $ 17.63 | -25% | -$5.75 | -4% |
@Home Network | ATHM | $ 112.81 | -25% | -$37.44 | 52% |
Infospace.com | INSP | $ 39.88 | -25% | -$13.63 | 109% |
ISS Group | ISSX | $ 21.56 | -26% | -$7.56 | -22% |
Doubleclick | DCLK | $ 85.63 | -27% | -$32.13 | 285% |
iVillage | IVIL | $ 44.38 | -30% | -$19.13 | 85% |
Concentric | CNCX | $ 28.88 | -31% | -$12.88 | 74% |
Security First Technologies | SONE | $ 34.50 | -31% | -$15.63 | 126% |
Xoom.com | XMCM | $ 45.50 | -33% | -$22.63 | 38% |
RealNetworks | RNWK | $ 58.00 | -37% | -$34.38 | 223% |
24/7 Media | TFSM | $ 27.00 | -38% | -$16.75 | -4% |
Of the 50 stocks in ISDEX note that the top four on the list are security software makers of various flavors. It’s not that these stocks represent a fantastic investment opportunity. Rather that all year this sector has been the ‘Rodney Dangerfield’ of Internet stocks, getting zero respect.
Axent (NASDAQ:AXNT) popped on news that it claims to be the first to offer Web security with its Defender product on UNIX and NT platforms.
Meanwhile, Network Associates (NASDAQ:NETA) puts together a slew of positive announcements including a deal with Cisco for PGP/VPN client network services. It helps that NETA has been hammered by investors on its accounting foibles.
The other 48 stocks in ISDEX head south for an early summer as rate hike fears overheat. I expect this pattern to continue into June as the IPO market gets more selective and the better firms go public.
Latin American Web portal firm StarMedia priced 7 million shares at the high-end of its range, $15 May 25. barnesandnoble.com (NASDAQ:BNBN) upped its price to $18 and sold 25 million shares in a $450 million offering that ended its first day of trading May 25 up 27% to $22 15/16 per share.
eToys (NASDAQ:ETYS) was another better-known offer with 8.325 million shares sold at $20.
With quality deals rising above the noise it could re-fuel the Internet sector in July or August, with third and fourth quarter expectations starting to drive prices. Holiday fervor could also return although I don’t think one-product etailers will have the same allure as Christmas 1998.
At the core of the ups and downs with Internet stocks is a central observation that relative to more mature technology stocks the argument can be had that 50 stocks in ISDEX appear relatively undervalued to the likes of three tech stars: IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC).
The 50 stocks in ISDEX, even with Cisco (NASDAQ:CSCO) and AOL (NYSE:AOL) add up to being about equal IBM, MSFT and INTC on a market capitalization sum. Granted, those three produce outstanding revenue and profits, no small thing.
Another point: it could be argued that IBM, MSFT and INTC are more and more “Internet” stocks also. IBM does more e-business than any firm on the planet. Intel’s new mantra is the Net is #1, Microsoft we already know about the electric kool aid Gates delivered to disciples in late 1996.
Said another way, as more “traditional” technology companies become heavy-lifting ecommerce companies that to me reinforces the strength of the underlying platform of the Internet itself.
With tremendous capital inflow by the Fortune 100 companies to build out a stronger, easier, faster Internet then many firms can leverage that investment across existing products and services and new ones. Which I see as creating more value for the industry, sector and stocks.
Interest rate hike concerns and slowdowns will come but you can’t put the Internet in a box and prevent value creation with so much capital and commitment. Keyword: speed bumps. Not dead ends.
Is it time to buy? only you can determine that for your own risk/reward ratio comfort level. I think there may be some more fall before a comeback but that valuations start to make more sense now at these levels.
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