Net Sector Remains Bright Spot in a Negative Market

Tech stocks inch up, but are held back by broader market weakness and earnings jitters.
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Rising interest rates, weakness in the broader market and earnings concerns all appear to be negatives for the Internet sector. But Net stocks remained the bright spot in an otherwise down day in the market.

TheStreet.com Internet Sector

index was up 4.11, or 0.6%, at 720.33 in recent trading; such a small gain was likely reflective of the broader market weakness.

The sector was being held up by a number of stocks that will report earnings later this week.

eBay

(EBAY) - Get Report

, which reports on Tuesday, was up 7 1/16, or 5%, at 149 11/16.

Amazon.com

(AMZN) - Get Report

, which reports Wednesday, was up 1 1/2, or 2%, at 80 1/8.

priceline.com

(PCLN)

, which reports on Thursday, was up 1 1/8, or 2%, at 67 7/8. And

Network Solutions

(NSOL)

, which reports on Thursday, was up 3 1/4, or 3.5%, at 95 1/8.

If we've learned anything about this earnings season it's that there is no pattern to how stocks trade after they report. Though many have bested estimates by a penny or two, only a few have had blowout reports that have characterized recent quarters. In addition, there has been only a minimal post-earnings selloff because the Net sector is now in what is expected to be a strong fourth quarter when earnings should be even better. Here is a brief rundown on what has transpired during the earnings season:

Yahoo!

(YHOO)

typically sells off after its earnings report, but that pattern did not hold true this quarter. Yahoo! closed at 175 3/4 on Oct. 6 in advance of its earnings report, then blew away market

estimates across the board. It moved higher the two days after the report, closing at 192 3/8 on Oct. 8. But Yahoo! has bounced around with the rest of the Net sector since then, reaching a low of 164 1/2 on Oct. 18. It was recently trading down 1 3/8, or 0.8%, at 176 3/4.

RealNetworks

(RNWK) - Get Report

followed a solid recipe for success. Unlike most Internet companies, it actually reported a profit, while also beating estimates by a penny. It fell prey to a down-market immediately before reporting on Oct. 19 and before bounding back. After trading as low as 87 3/4 on Oct. 18, it reached a high of 107 3/4 or Oct. 20. It recently was trading up 7/8, or 1%, at 98 9/16.

eBay appears to have some similarities to RealNetworks. It is expected to report a 1-cent profit, according to

First Call/Thomson Financial

. It also has rallied ahead of its numbers, going from 124 1/2 on Oct. 8 to a high of 153 1/16 on Oct. 22.

Possibly the worst thing that could happen to a stock after earnings happened to

Inktomi

(INKT)

. Despite beating estimates by a penny, Inktomi was downgraded by

Merrill Lynch

, which cited concerns about valuation and operating expenses. Despite beating earnings numbers by a penny and receiving praise from most analysts, the downgrade by Merrill's Henry Blodget dropped the stock by 14.5%. Today, Inktomi was attempting to recover, up 3 5/8, or 3.5%, at 106 11/16.

Then there's

Phone.com

(PHCM)

. The company took the unusual step of announcing a stock split three days before it reported earnings last week. After adding roughly 50 points from the time the split was announced to its earnings report, Phone.com has fallen prey to profit takers and was recently down 14 1/4, or 6%, at 215. This comes despite the stock beating estimates by 7 cents.

Bottom line is that most Net stocks run up in advance of earnings, though there is not much pattern to what goes on after the numbers and much depends on what the reports show. In addition, Net stocks remain influenced by fluctuations in the overall market and could move irrespective of earnings.

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