Walking Wounded Top This Week’s ISDEX

This week internet.com’s Internet Stock Index is led by two companies facing troubled – and in the case of one, perilous – times.

Neither rally, however, portends any imminent reversals of fortune for the companies in question. Rather, they bear the markings of short-term upward bounces off 52-week lows.

Red-drenched e-retailer Amazon.com gained 25.1% in the week of trading ended Wednesday, closing at $38.63, despite news that its online furniture Web site partner Living.com was shutting its doors.

Hot on AMZN’s heels was Intraware , an online marketplace for Web-based software and service, which rose 22.1% after losing nearly 25% last week.

Overall, the ISDEX treaded water, gaining 1.5% to finish Wednesday at 753, as 28 of 50 member companies headed north. For the year, the index is down 12.5% from its Dec. 31 close of 860.35.

Though the ISDEX now has advanced for two consecutive weeks, this week’s modest gain pales compared to the previous 8.5% surge, indicating, as I had mentioned last week, the great difficulty Internet stocks have had this summer in maintaining upward momentum.

Back to the current leaders. Dont get too excited about Intraware’s performance. Shares are coming off an all-time low of $5.25 set on Aug. 10, and it’s common for stocks to get a solid bounce of a new low, only to quickly establish another bottom.

ITRA has done this numerous times on its way to a catastrophic plunge of 91% in share price for the year to date, setting new lows in April, May, July and, now, August.

In a show of confidence (or else a desperate bid to bolster ITRA stock), CEO Peter Jackson reportedly has purchased 43,000 shares at $7.38. News of the stock buy helped pushed shares up 36% to $7.50 on Monday alone, but by early Wednesday, ITRA was back down to $6.88.

The market appears to have given up on ITRA, and I believe the only thing that can turn sentiment around is demonstrable progress toward profitability. There were faint hopes in the quarterly report released in late June, which showed the net loss ($11.8 million) increasing only slightly over the net loss in the most recent quarter ($11.2 million). Intraware will get its next chance to prove the market wrong in late September.

Beginning in late July, Amazon.com has repeatedly threatened to close below $30 per share for the first time since November 1998. Its stock avoided a hit for Living.com’s demise only because Amazon.com officials were quick to point out that the company has already accounted for losses related to the failed investment and won’t take any writedowns in Q3.

That meager upside was quickly dismissed as investors focused on the larger issues regarding Amazon.com’s aggressive expansion beyond books and CDs into other retail markets. AMZN shares were down 2.6% to $37.63 by early Wednesday afternoon.

Some are using the Living.com debacle to question investments and partnerships Amazon.com has made with companies in other retail markets, such as pet supplies, jewelry, over-the-counter drugs and groceries.

While I too remain extremely skeptical about Amazon.com’s business model – $1.1 billion in net losses over the past four quarters has that effect on me – Living.com is a worst-case example. Selling furniture over the Internet has been, and will continue to be, a non-starter. It was a stupid idea for CMGI and its entry into that market, the late Furniture.com, and it was a stupid idea for Living.com and the world’s largest e-tailer.

Look for AMZN to drift below $30 per share within the next month.

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