eBay Is Chief Punching Bag in Bruising Day for Net Stocks

SAN FRANCISCO -- If it wasn't a bloodbath in the Internet sector, it certainly has the makings of one.

Internet stocks were slammed into the ground, following the lead of one of the sector's bellwethers, eBay (EBAY Quote), which dropped precipitously after the site was down for close to 24 hours last week.

eBay Flip a coin between eBay and DoubleClick. Both contributed mightily to the sharp selloff in the Internet sector, but eBay wins out with a 30-point loss. eBay continued to see fallout after its site went down for nearly 22 hours last week and had more problems over the weekend. It finished down 29 7/8, or 18%, at 136.

Robert Dickey, director of technical research at Dain Rauscher Wessels, was calling for a couple of very ugly days at the beginning of the month and said this might be one of them.

"I don't think we've seen the climax yet, but we're close," Dickey said. "It's going to light up your screen a little more than this."

Dickey said the Net sector is seeing a "classic margin squeeze," and with each move to the downside, traders are seeing more and more margin calls. Losses today could prompt overnight margin calls. He said the signal for when the sector has bottomed would be a sharply lower open and a large volume day, which could occur on Tuesday, or certainly in the next few weeks. That, he said, will be the time to buy.

"It will be hard to do because it will look like the end of the world, but the end of the world is always the best time to buy," he said.

eBay's (EBAY Quote) Web site was up and running again, but investors had seen enough and sold shares of the online auctioneer en masse. eBay closed down 29 7/8, or 18%, at 136 in what could only be described as panic selling.

Analysts said the roughly 22 hours in downtime of eBay's site was expected to cost it between $3 million and $5 million in revenue, though it remains to be seen how much business the company will lose from disgruntled users who have other options for auction sites on the Net. eBay continued to have technical difficulties over the weekend and investors took it out on the company today.

Net stocks also suffered a one-two punch from a couple of analysts. Morgan Stanley Dean Witter analyst Mary Meeker wrote that she was not "convinced" that the recent market crack for Internet stocks was over. In addition, Credit Suisse First Boston analyst Lise Buyer wrote that she did not believe "that this is the time to dive back in" to Internet stocks.

Merger news proved detrimental to both Qwest Communications (QWST Quote) and DoubleClick (DCLK Quote) and added to the negative sentiment in the sector.

Qwest tumbled after it offered $55 billion cash and stock in separate hostile bids to acquire US West (USW Quote) and Frontier (FRO Quote). The bids top by about $7 billion friendly deals between Global Crossing (GBLX Quote) and US West and Frontier.

Investors responded to the news by slamming Qwest. It closed down 10 3/4, or 24%, at 34 1/8 and contributed to the 50-point loss in the Nasdaq. Global Crossing finished down 3/8, or 1%, at 50 3/8, while US West was up 3 1/8, or 6%, at 58 and Frontier was up 1 15/16, or 3.5%, at 57 3/8.

But in a midday note, Legg Mason Wood Walker analysts said Qwest stock was "being unduly punished" today and shares "could easily rebound to the high 30s in the near term." They said that the transactions would fill "two critical holes in Qwest's business plan." Legg Mason maintained its market perform rating on the stock.

Online advertiser DoubleClick appeared to pick a bad day to report that it had agreed to acquire Abacus Direct (ABDR Quote), a market research firm. DoubleClick will issue 1.05 shares of its stock for each share of Abacus, making the deal worth close to $1 billion. DoubleClick closed down 18 1/16, or 20%, at 70 3/4, suffering from the malaise among Net stocks. Abacus closed down 7 1/16, or 9.5%, at 67 1/2.

Online brokerages took a tumble after Schwab (SCH Quote) reported that it processed 28% fewer trades in May than in April. The decline in trading volume coincided with a decline in the stock market and rekindled fears that online brokerages will not perform well during a bear market.

Schwab closed down 10 5/16, or 11%, at 83 15/16. Ameritrade (AMTD Quote) closed down 12 11/16, or 16%, at 66 1/16, and E*Trade (EGRP Quote) closed down 5 3/4, or 15%, at 32.