It used to be that Internet companies' futures were so bright, they had to wear shades. They're still wearing dark glasses -- but only to hide the black eyes. The sector went south again this morning, dropped by a sense that things are going to get worse before they get better.
TheStreet.com Internet Sector
index was down 6.5%, led by a steep drop in online auction site
, which was trading down $8.81 or 20.3% to $34.63 after
analyst Holly Becker downgraded the online auction site from buy to neutral. She said growth is slowing for the company's core business and new plans will take longer than expected to implement. Becker also wrote that it was becoming less likely that eBay would be bought by portal leaders
, because of the decline in their stock values.
In fact, Yahoo!'s stock continued to decline, after a French court ruled the company would have to bar French users from sites that sold Nazi memorabilia. Yahoo!'s shares were down $1.81 or 3.5% to $49.44. AOL fell off after a report that its merger with
may take longer than expected.
Unclear visibility and the dot-com debacle led to a downgrade that rocked the shares of Web hosting service
, just acquired by
downgraded the stock from rating to buy. Web hosting companies manage the servers and Internet access for dot-com sites.
The acquisition by WorldCom has given Digex some deeper pockets to ride out the ongoing dot-com shakeout, but the company wasn't able to give analysts much visibility into next year's earnings. Investors continue to worry about the exposure of Web hosters such as Digex to the rapidly shrinking number of functional dot-com companies.
Digex's stock, which had dropped more than 80% since March by the time the purchase was approved, was trading down $3.50, or 12.1% to $25.50. Other Web hosters also were feeling the pain of the dot-com problems. Competitor
was trading down 88 cents, or 17.1% to $4.25, and industry leader
was trading down $2.81 or 9.7% to $26.13.
, the leading Internet advertising agency, was trading down after remarks about its acquisition of
, which rallied.
Is there any good news?
Well, this holiday season may not be as bad as feared for many e-tailers. Analyst Anthony Noto of
said a recent survey showed some solid growth for the all-important fourth quarter.
According to a
survey, 88% of online shoppers will spend as much or more on shopping this season as last. And sales for the first two weeks of November were up 1.5 to two times what they were a year ago, the survey said.
All that should be good news for e-tailer
, which also has seen its visitor count rise 70% over the same period last year, Noto said. (Noto's firm has no underwriting relationship with Amazon). But the leading e-tailer was down $1.75 or 6.2% to $25.75.
Another bright spot was provided by
, the nation's No. 2 ISP, after it announced a deal that would give it high-speed access to Time Warner's cable lines. The deal was seen as necessary for AOL and Time Warner's approval for their merger.
"It's a step in the right direction,"
analyst David Levy said. But investors noted it was only one step. The optimism that sent Earthlink's
shares up $1.41 or 16.9% to $8.34 didn't extend to fellow ISPs
. Juno was down 16 cents, or 5.3% to $2.54 and At Home was down 58 cents, or 6% to $8.75.