Net Shares Battered Amid Signals That Web’s Expansion Is Slowing
The Internet stock sell-off went from bad to worse Monday as America Online, EBay, Charles Schwab and Amazon.com led the sector lower on growing concerns that the Web’s growth pace may have hit stumbling blocks.
Net stocks had soared in the last year on expectations that revenue from Web-based businesses would boom for the next five to 10 years. But that strong pace may not be as steady as projected based on recent events, analysts said.
Visits to top Web sites were little changed at 61.6 million in April versus March after rising 2.6% the month before, market researcher Media Metrix Inc. said.
On Monday, top online broker Schwab said its trading activity fell sharply in May.
Also slamming the Net sector was fallout from EBay’s Web site crash last week, which the firm said will cost it up to $5 million in sales.
A software glitch caused EBay’s service to shut down for almost a full day before resuming Friday.
“Now we’re getting mature enough in the Internet world that expectations are much higher” for reliability, said analyst David Trossman of Legg Mason Wood Walker. “EBay says, ‘We won’t let it happen again,’ and when it does happen again, it’s that much more damaging.” He still rates the shares a “buy.”
EBay had further unscheduled down time over the weekend. At about 9:30 p.m. Saturday, it posted a message on its site that engineers had to take down its computer for about four hours for system maintenance. That outage lasted about an hour and 25 minutes.
Some analysts also expressed concern Monday that free Internet service providers in Britain are pinching AOL’s subscriber growth.
“I don’t think Europe will do well for the foreseeable future,” said Jim Preissler, an analyst at PaineWebber. “In Europe, we believe, AOL’s growth rate has been slower than expected.”
“Extremely rapid growth will be tough to maintain” for AOL because it’s harder to grow as fast from a base of larger subscribers, noted Ryan Jacob, portfolio manager of the Internet Fund.
But perhaps the biggest problem for Net stocks is the rise in market interest rates in recent months, which has depressed many formerly highly valued stocks. The stock market overall continues to wrestle with the question of how high rates will go.
