Analysis of Media Metrix Usage Numbers Shows Some Differing Opinions

It's a good thing the Internet sector is focused on earnings and not the release of the latest usage numbers from Media Metrix (MMXI).

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 15.83 +2.3% 695.27 TSC E-Commerce 2.41 +2.4% 101.38 TSC E-Finance 1/16 +0.1% 55 13/16 Nasdaq 67.49 2.5% 2755.67

The online rating service showed usage in the U.S. increased to 63.4 million users in September vs. 63.1 million users in August. Usage among the major portals was relatively flat. In addition, there was a 5.3% decline in usage hours among the top 50 Web properties. Usage totaled 195 million hours in September vs. 206 million hours in August.

Analysis of the numbers shows some differing opinions. Merrill Lynch analyst Henry Blodget wrote that the numbers were "surprisingly light" given the seasonal strength anticipated for September. But he also said that data over the past six months was showing "a gradual slowdown in the growth of U.S. Web users."

Analysts at Deutsche Banc Alex. Brown disputed the numbers, saying they were "not reflective of what we are hearing from several of the Internet leaders (AOL (AOL), Yahoo! (YHOO), Excite@Home (ATHM))," though they also noted that they expected a seasonal slowdown during the first half of September.

Finally, analysts at Goldman Sachs contend that current audience measurement methods "are still nascent," and investors "should be focused on quarterly trends rather than monthly variations."

The small month-to-month increase should not be a huge surprise. Last year, usage numbers from Media Metrix between August and September showed only a 100,000 increase. And last week, numbers from Nielsen/Net Ratings actually showed an overall decline in usage to 65 million in September from 66.8 million in August.

The Nielsen numbers did show some seasonal-based increases. Activity on sports sites jumped by 44.5% from August to September, to 10 million users from 6.9 million. Activity on financial sites also increased by 41.1% as the market bounced back from August weakness.

Schwab Investors Offline

Online investors at Charles Schwab(SCH) were not able to trade online for much of the morning. A Schwab spokesman said that the Web trading function went down at 9 a.m. EDT and chat boards indicated that the site was back up around 11:45 a.m. EDT. Schwab, and many other online brokerages, have had intermittent problems in the past year with keeping online trading constantly running. Schwab was down 5/8, or 2%, at 29 in recent trading.

Henry Who?

Reminiscent of Blodget's 400 price target call for Amazon.com (AMZN) when he was at CIBC Oppenheimer, Friedman Billings Ramsey analyst Rob Martin slapped a 325 price target on RealNetworks (RNWK) after the company reported earnings on Tuesday night. Friedman Billings Ramsey has no underwriting relationship with RealNetworks.

Martin told TSC that it was not the first time he has gone out on a limb with a price target on RealNetworks. In March, he said, he had a 300 price target and the stock went as high as 229 before splitting. He uses a complex formula that assumes that the number of unique users using RealPlayer would rank RealNetworks among the top five Web properties, and extrapolates the amount of revenue the company would make if it was seen as one of the top properties. He then comes up with the 325 price target over the next 12 to 18 months. In recent trading, RealNetworks was down 4, or 4%, at 99 3/8 as traders took profits after it ran up in advance of the report.

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