Net Stocks Hit Again on Dimming Ad Growth
The credibility of Internet companies’ business models took another shot to the gut Tuesday as investors sent shares of key players to new 52-week lows.
The stocks led another sharp decline on Wall Street, pulling the Nasdaq composite index down 76.32 points, or 2.3%, to 3,213.96.
The driving force in this latest Net-stock down wave: mounting worries that the outlook for Net firms’ ad-revenue growth is dimming rapidly.
America Online took one of the day’s biggest hits, plunging $9.06, or 17%, to $43.60--its lowest since September 1999--in advance of its quarterly earnings report expected today.
That clipped shares of Time Warner, AOL’s intended merger target, by $12.24 to $65.56, its weakest since just before the deal was announced in January.
Analysts said Wall Street is spooked by concerns about slowing ad revenue at AOL and other Net giants. Many smaller Internet companies that advertise on AOL--a significant source of revenue over the last two years--are strapped for cash and are cutting back ad spending.
“The advertising crunch is going to have an impact on everyone with advertising exposure,” said CIBC World Markets analyst John Corcoran. “It’s only a question of how much.”
Those fears also hammered shares of Net portal Yahoo Inc., which slid $6.31, or 11.4%, to $48.94 on Tuesday, the lowest price since late-1998.
The stock has slumped 43% just since Oct. 9. In its third-quarter earnings report last week the company confirmed that it is seeing advertising from fewer companies, though it said major advertisers were buying more ads and signing longer contracts.
The ad shakeout will force companies like AOL and Yahoo to try to sell more ads to companies whose main business isn’t online, analysts say. But that transition may be difficult, Lehman Bros. analyst Holly Becker wrote Tuesday in a report to clients about Yahoo.
“There is an expectation that after six to nine months of calling on traditional advertisers, dollars will come pouring in,” Becker wrote. “Our research suggests that turning ‘toe-dipping’ budgets into real dollars may take longer.”
Her report, issued early in the day, said Yahoo shares still weren’t cheap, even though they have fallen 80% from their peak.
Based on analysts’ current consensus estimates that Yahoo will earn 47 cents a share this year and 59 cents in 2001, the stock is priced at 83 times 2001 earnings.
Other major Net stock casualties Tuesday included Amazon.com, which dropped $2.38, or 10%, to $21.94, its lowest since 1998; and DoubleClick, the biggest Internet ad company, which lost $1.94, or 16%, to close at $10.19, also near a two-year low. DoubleClick shares traded at $135 in January.
Also, RealNetworks Inc. the leading maker of Internet media software, on Tuesday posted a quarterly profit that hit Wall Street forecasts. But the firm said ad revenue would dip in the current quarter.
The company’s stock fell $3.13 to $21.69 in regular Nasdaq trading, then tumbled to $17.75 in after-hours trading.
America Online, however, isn’t as vulnerable to the “dot-com” ad slowdown as other companies, analysts said. The Dulles, Va.-based company gets only about 30% of its revenue from advertising and online commerce, Jefferies & Co. analyst Jeffrey Cino said. He rates AOL shares a “buy.”
“We don’t think AOL-Time Warner is vulnerable in any way,” said John Schreiber, a portfolio manager with Janus Capital in Denver. He said he expects AOL today to report “robust” ad sales for the third quarter.
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More Holes in the Net
Major Internet-related stocks fell sharply on Tuesday, extending their steep declines this year. The stocks’ losses have vastly reduced the companies’ market capitalizations--share price times the number of shares outstanding--from what had been extraoardinary levels earlier this year. A sampling of Net companies:
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Market Ticker 52-week Tues. cap Stock symbol high close (billions) America Online AOL $95.81 $43.60 $101.3 Yahoo YHOO 250.06 48.94 26.9 EBay EBAY 127.50 52.75 14.2 Inktomi INKT 241.50 80.81 9.2 Amazon.com AMZN 113.00 21.94 7.8 InfoSpace INSP 138.50 18.63 5.4 CMGI CMGI 163.50 15.38 4.5 RealNetworks RNWK 96.00 21.69 3.4 Homestore.com HOMS 138.00 34.81 2.9 DoubleClick DCLK 135.25 10.19 1.3
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Source: Times research, Bloomberg News
