Wave Of ‘Net Delistings Looms

Market watchers like to cite “capitulation” by investors – the mass selloff of stocks across all sectors – as a key indicator signaling a bear market has bottomed out.

This week we’ve seen a different kind of capitulation, with two ‘Net companies uttering the phrase dreaded by investors everywhere: Our stock is essentially worthless.

On Tuesday, ‘Net consultant Xpedior all but waved the white flag on its common stock, saying in a press release the company doesn’t expect to meet an April 17 deadline to get share price back up to $1 in order to avoid a Nasdaq delisting. Trading of XPDR shares was halted right before Tuesday’s opening bell, having closed Monday at 31 cents.

“It is likely that the common stock of the company will have no value” even if Xpedior succeeds in gaining funding to stay in business past June, the release said.

This followed by a day a strikingly similar announcement by PSINet (which, coincidentally, once owned a stake in XPDR). The ISP, which closed Wednesday at 13 cents per share, said Monday it is seeking to restructure its burdensome debt and exploring “strategic alternatives” such as a buyout.

“Even if PSINet is successful in one or both of these efforts,” the release warned, “it is likely that the common stock of the company will have no value.”

We’ll be hearing more of this kind of thing in coming months, for nearly 100 Internet companies – or about one out of four – are flirting with the Nasdaq’s delisting process. Given the ominous economic forecast and abandonment by the capital markets, dozens of cash-starved Internet players soon could be trading on the “pink sheets,” if they’re still around to trade anywhere.

The good news is that all of this could mean the beginning of the bottom for ‘Net stocks. Granted, that’s more fervent wish than fact, but with the IPO market dead, the number of Internet companies trading on the major exchanges – particularly the Nasdaq – will shrink considerably. At some point supply and demand kicks in, just as it did – in reverse – from 1998 through last March. when demand for ‘Net stocks overwhelmed supply, contributing heavily to the triple-digit returns investors came to take as the norm.

The Nasdaq can begin the delisting process once a company’s share price falls below $1 for 30 consecutive days. After a company is notified of a possible delisting, it has 90 days to get its stock price above the $1 mark and keep it there for 10 straight trading days. (For some companies, the delisting line is $5 per share.)

Through Wednesday’s close, I counted 84 companies trading below $1 per share, with another five right at a buck and six more at $1.03 or $1.06.

On top of that, 254 of 369 Internet stocks, or more than two-thirds, are now trading below $5 per share. Two years ago, less than 10 ‘Net tickers of about 125 or so were selling below $5.

If a company decides to fight delisting, it can continue trading below $1 for well beyond the Nasdaq’s prescribed limit. Web health site drkoop.com, for example, has been below $1 per share since last October – a run of more than five months. The Nasdaq has set a March 30 hearing for KOOP to argue its case.

Here are the Internet stocks with the lowest share price through Wednesday:

Ticker  Company           3/21 Close     Days Below $1

ESTM    E-Stamp             $0.09            120
QKKA    Quokka Sports        0.09             63
PSIX    PSINet               0.13              7
CONV    Convergent           0.16             17
FUSN    Fusion Networks      0.16            110
WOMN    Women.com            0.16             85
HGAT    HealthGate Data      0.19            100
OPUS    Opus360              0.19             84
TCTY    Talk City            0.19            114
WBVN    Webvan Group         0.19             79
KOOP    drkoop.com           0.19            106

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