Net Stocks Drop Like Falling Stars - TheStreet

OK, it's pretty easy to do a snow simile, and like the snow that was falling in both Chicago and New York, so were Internet stocks.

TheStreet.com Internet Sector

index was down 30.85, or 2.7%, at 1113.64 in recent trading.

TheStreet.com New Tech 30 was down 9.91, or 1.4%, at 720.48. In an earlier

piece, our own

James Cramer

pointed out that he wasn't playing around on an expiration day.

There were any number of falling stars.

Yahoo!

(YHOO)

was down 5 5/16, or 3.3%, at 157 7/8;

America Online

was off 1 1/2, or 2.8%, at 51 1/2;

Amazon.com

(AMZN) - Get Report

was down 4 1/2, or 6.5%, at 64 1/2;

eBay

(EBAY) - Get Report

was down 4 1/4, or 2.9%, at 141; and

priceline.com

(PCLN)

was off 3, or 5.5%, at 52.

Merrill Lynch

analyst Henry Blodget attributes some of the Net sector's troubles to the problems that

DoubleClick

(DCLK)

has suffered as a result of the inquiries into the online advertising firm's privacy practices. Blodget echoed

comments other market participants have made in DoubleClick's defense.

TSC's

George Mannes

took a look at the companies' woes and how they related to its secondary in an earlier

story.

"We believe this issue is mostly perception, not reality (i.e., we do not believe the practices of the high-quality Internet companies merit additional regulation, and we do not believe the government will enact any significant new legislation anytime soon, as the issue is just too complex to sort through quickly)."

But Blodget admitted that negative sentiment surrounding the issue could cause near-term weakness in stocks of those companies that might be affected by increased regulation, including Yahoo!, AOL, DoubleClick,

24/7 Media

(TFSM)

,

Lycos

(LCOS)

"and any other companies that generate revenue through online advertising."

Blodget indicated that privacy issues, like other online legislation issues, "will take years if not decades to resolve," so any weakness in the stocks derived from such concerns was likely to be temporary.

Blodget noted that New Jersey Sen. Bob Torricelli last week introduced a bill that would restrict how Internet companies are able to collect online data, specifically by requiring them to get consumers' permission to garner virtually all information. And he wrote that the

Clinton

administration has reportedly been advocating voluntary industrywide guidelines for protecting online users' privacy. He further noted that privacy was the latest in a long list of Internet economy issues that have attracted government scrutiny, including online credit card security, taxation of e-commerce, Web site security, interstate transportation of liquor, the status of broadband cable providers, and online pornography.

"As of yet, although many issues have been discussed, very few new laws surrounding the above issues have been passed. Generally speaking, in our view, it is tough to regulate an industry still in its relative infancy."

Finally, Blodget wrote that the personal information that was at issue in DoubleClick's case has not yet contributed very much to Internet advertising revenue, as most advertisers were buying Web site inventory based on its subject matter, though he did think it would be "a driver of revenue growth and profitability in the future."

DoubleClick was up 3/16, or 0.2%, at 980 15/16 in recent trading, but has dropped around 20% in the past two sessions. Note that Merrill Lynch has done underwriting for AOL, 24/7 Media and Lycos.