The Memorial Day weekend provides welcome relief from a frenetic and
frightful month for Internet stocks and IPOs.
May was notable for three things:
- A downturn in the prices of Internet stocks so severe that even
Internet bulls started to wonder if the so-called bubble was in the
process of bursting; - A record number of Internet IPOs;
- The cool reception given many of these IPOs, indicating that the
market has reached a saturation point.
The downturn can be attributed to any number of things, including a
predictable seasonal softening of the market, concerns that Internet
companies are terribly overvalued, and fears about inflation and
possible interest rate increases. Among the biggest victims in May were
high-flyers such as Amazon.com, CMGI, Go2Net and RealNetworks.
Whether the worst is over depends on whom you ask. Internet stock
analyst Mary Meeker of Morgan Stanley Dean Witter said this week that
the Internet market could drop another 20% before hitting bottom.
But Keith Benjamin of BancBoston Robertson Stephens said the market
already may have bottomed out, and expects many stocks to rebound once
Q2 earnings reports start coming in.
Some other analysts predict, rather gleefully in my opinion, that the
bloodbath for Internet stocks is just beginning.
My guess is that the reality lies somewhere between Meeker and Benjamin.
Sure, there’s more room to fall, and there absolutely are some bum
Internet stocks out there. But Internet stocks have hit bad stretches
before (look at last October’s charts), only to roar back on the
strength of market leaders such as AOL, Amazon.com and eBay.
There were 26 Internet IPOs in May, shattering the April record of 17.
Given the bulging IPO pipeline, this new record could be threatened in
June, even if some Internet companies postpone plans to offer shares.
However, few of the Internet IPOs that debuted in May blasted off the
launch pad, with TheStreet.com and eToys being notable exceptions.
Several were duds, either closing their first day of trading at or below
the offer price, while the bulk did reasonably well by objective
standards but fell prey to the expectations game.
Next Tuesday’s StockTracker Daily will tally the average first-day
performance of May’s Internet IPOs and how it compares to previous
months this year.
But I’m taking Monday off. I hope you do too.
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