Net Sector Suffers From Postholiday Blues

E-commerce sites, in particular, are feeling a little weak this morning.
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Internet stocks weren't sharing in the

Dow's

postholiday celebration. Weakness in some e-commerce sites and profit-taking in other issues had the Net sector on the defensive as the final week of the year began.

TheStreet.com Internet Sector

index was down 28.42, or 2.5%, at 1100.10 in recent trading.

TheStreet.com E-commerce

index was off 2.89, or 2.4%, at 116.53. Among stocks of note,

Yahoo!

(YHOO)

was off 18 3/4, or 5%, at 383 7/8, while

CMGI

(CMGI)

was down 20 1/16, or 7.4%, at 250 3/4. Both have had huge run-ups in recent weeks.

By most indications, the holiday season was a booming one for both online and offline retailers. But not sharing in any postholiday revelry were

eToys

(ETYS)

and

Amazon.com

(AMZN) - Get Report

. eToys was down 4, or 13%, at 26 15/16 after it was downgraded by

Robertson Stephens

to long-term attractive from buy. Amazon continued reeling from fears that its gross margins would be ugly in the current quarter. It was off 7, or 8%, at 83.

Robertson Stephens analyst Lauren Cooks Levitan wrote that eToys "has struggled in recent weeks to deliver preholiday levels of superior customer service," though she also indicated that its struggles were "less than other toy e-tailers." According to Robertson Stephens' Online Shopping Challenge, conducted by

BizRate.com

, overall customer satisfaction rating fell from a high of 10 (out of 10) in the third week of the survey (Nov. 17) to a low of 7.71 in the week ended Dec. 19.

Levitan indicated that difficulties in fulfilling numerous last-minute orders "could negatively impact the company's gross margin rate in the quarter as a result of shipping upgrades and reshipped packages." She expects that revenue for the quarter could exceed her $78.5 million estimate, but was concerned that "bottom-line improvements could be limited despite high sales volume." Robertson Stephens has done underwriting for eToys.

Hambrecht & Quist

had some positive things to say about online brokerage stocks. Analyst Gregory Smith upgraded

Knight/Trimark Group

(NITE)

with a 60 price target, and he reiterated buy ratings on

E*Trade

(EGRP)

,

Schwab

(SCH)

and

TD Waterhouse

(TWE)

.

Knight/Trimark was up 3, or 6.4%, at 50. Smith wrote that the recent pullback in the stock of 15% and strengthening fundamentals have created a buying opportunity. He upped his earnings-per-share estimate for the fourth quarter by 6 cents to 39 cents due to the volume rally continuing into December.

E*Trade was up 9/16, or 2%, at 27 13/16, while Schwab was up 1 5/16, or 4%, at 33 5/16 and TD Waterhouse was up 1/4, or 1.7%, at 15 7/16. Smith wrote that the online brokerages on which he reiterated buy ratings will benefit from increases in trading volumes. He blamed the recent pullback in the sector on tax-loss selling and "a general loss of momentum in the sector." He expects momentum to return to the groups as tax-loss selling abates and investors begin to focus on fourth-quarter earnings. H&Q has done underwriting for E*Trade, but not the other brokerages.

priceline.com

(PCLN)

was getting a little help from news that it will become the latest site seeking to cash in on the auction market. priceline is preparing to launch a Web site called

Perfect YardSale

, which will match up buyers and sellers of goods, according to

The Wall Street Journal

. What will separate priceline's auction site from others? Bidders will be able to make an offer below the seller's asking price, which the company claims will lead to better bargains than at auctions where a minimum price is set.

The site will focus on buyers and sellers in common locations, who will meet to inspect and purchase the merchandise. priceline will charge $1 to list an item, while sellers would pay $3 to $5 for every item sold on the site, the article reported. priceline was up 7/8, or 1.6%, at 55 7/8 on the news.

Commerce One

(CMRC)

was down marginally after the company split 3-for-1 after the close Thursday. It was down 3 1/16, or 1.2%, at 196 in recent trading.