Pulse: Yahoo! Leads Net Stocks Lower Amid Ad Skittishness
Internet stocks were certainly the drag on the
Nasdaq
today.
Yahoo!
(YHOO)
led the way down ahead of its earnings report, which was
released after the close.
The
Nasdaq
ended the day down 23.87, or 0.6%, at 3956.42.
TheStreet.com Internet Sector
index underperformed, closing down 30.22, or 3.9%, at 753.80.
Yahoo! ended the day off 4 1/2, or 4%, at 105 1/2 after trading as low as 99 7/8. Though Yahoo! bested earnings estimates, investors will be more concerned with guidance the company gives regarding future quarters.
Other Net stocks tumbled as well as investors continued to be concerned about the potential for declining advertising.
DoubleClick
(DCLK)
TheStreet Recommends
dropped 3 3/16, or 10%, to 28 1/2, and
RealNetworks
(RNWK) - Get RealNetworks, Inc. Report
ended down 5 13/16, or 13%, at 38 15/16.
And
Merrill Lynch's
Internet HOLDRs
(HHH)
, a basket of 19 Internet stocks, traded to its lowest level since its inception last September. The HOLDRs ended the day down 4 7/16, or 4.4%, at 96 9/16. The previous low was 97 1/2 back in May.
Stocks in the basket are traditional names such as Yahoo!,
America Online
(AOL)
,
Amazon.com
(AMZN) - Get Amazon.com, Inc. Report
,
CMGI
(CMGI)
and RealNetworks.
A number of earnings warnings also were a drag on the sector. Among the stocks that preannounced (more details can be found below) were
Aspect Communications
(ASPT)
, which closed down 23 7/8, or 54%, at 20;
The Santa Cruz Operation
(SCOC)
, which ended down 1 9/16, or 27%, at 4 1/8; and
Pinnacle Systems
(PCLE)
, which tumbled 13 7/16, or 59%, at 9 3/16.
One stock that benefited from a preannouncement of the positive kind was
Alteon WebSystems
(ATON)
, which said it had reached operating profitability three quarters ahead of expectations. It ended up 30 3/16, or 30%, at 131 1/8.
Also on the upside,
VoiceStream Wireless
(VSTR)
, which climbed 14 1/8, or 11%, to 139 1/16 on reports that it could be acquired by
Deutsche Telekom
(DT) - Get Dynatrace, Inc. Report
.
2:04 P.M.: B2Bs Show a Little Life
While both e-commerce and business-to-business plays plummeted during the recent Internet selloff, e-commerce stocks have for the most part not been able to recover. Business-to-business stocks, however, have shown a little more promise, though most remain far from their all-time highs.
With the business-to-business sector still in its infancy, investors continue to try to determine which companies will emerge as the strongest and fulfill the lofty valuations bestowed upon them. Today, a number of B2B plays were ramping following a positive research report from
Credit Suisse First Boston
.
CSFB analysts Brent Thill and George Gilbert highlighted
i2 Technologies
(ITWO)
,
E.piphany
(EPNY)
,
Kana Communications
(KANA)
and
Retek
(RETK)
"as core names to hold" heading into the second-quarter earnings season.
The analysts also indicated they expected upside surprises from
Art Technology
(ARTG)
,
Actuate
(ACTU)
and
Selectica
(SLTC)
, though they noted that some of the upside already was priced into those stocks. Of the above-mentioned companies, CSFB has done underwriting for E.piphany, Retek and Selectica.
The analysts go on to say that as marketplaces become the center of gravity in software, they expect coalitions to form around the three principal groups:
Ariba
(ARBA)
/
IBM
(IBM) - Get International Business Machines Corporation Report
/i2 Technologies,
Oracle
(ORCL) - Get Oracle Corporation Report
, and
Commerce One
(CMRC)
/
SAP AG
(SAP) - Get SAP SE Report
, along with a potential surprise partner in
Microsoft
(MSFT) - Get Microsoft Corporation Report
.
In recent trading, i2 Technologies was unchanged, E.piphany was up 3.2%, Kana was down 0.1% and Retek was up 1.1%. Art Technology was up 6.9%, Actuate was up 0.2% and Selectica was up 6%.
Elsewhere in the B2B space,
Vignette
(VIGN)
was on the decline, down 14%. There was no news about the company, though there were some unconfirmed, and apparently unsubstantiated, rumors of some negative comments about Vignette from a research firm.
BroadVision's
(BVSN) - Get BroadVision Inc. Report
swoon continued, down 11.8%. And
Digital Island
(ISLD)
was down 10.2%, again on no news.
More traditional plays were mostly weaker ahead of
Yahoo!'s
(YHOO)
earnings report after the close. Yahoo! was down 8%.
There has been much concern in the space about declining advertising revenues, and that's apparently what's behind losses in
RealNetworks
(RNWK) - Get RealNetworks, Inc. Report
, which was down 11% in recent trading.
Analysts at
Lehman Brothers
attempted to address that issue in a note today, indicating that the impact from a slowdown in online advertising would only have a "minor" impact on the company. Analyst Michael Stanek wrote that ad revenue currently accounts for only 15% of the company's total revenue and most contracts are a combination of e-commerce, ads and technology agreements. Lehman has done underwriting for RealNetworks.
10:46 a.m.: Nasdaq Rallies While Warning Stocks Get Clocked
The stock market is entering earnings season, when mostly positive news is expected, but still found itself focused on some earnings warnings made since yesterday's close.
Not that you'd notice that negativity in a glance at the largest tech-focused index, the
Nasdaq, which was up 40, or 1%, to 4020 in early trading.
TheStreet.com Internet Sector
index was down 9, or 1.1%, to 775. There was some hesitation ahead of a speech from
Federal Reserve Chairman
Alan Greenspan, though his speech did not dissuade a market that has been focused on an end to Fed rate hikes, and both Treasuries and stocks have moved higher following the speech.
A few stocks were on the defensive after warning of earnings shortfalls.
Aspect Communications
(ASPT)
was enduring the old forced 2-for-1 stock split, getting shattered 54.6%. The company, which provides Web technology for managing customer relationships, warned it will miss its second-quarter earnings because of lower business levels and delays in government contracts. It is expected to report earnings of 1 cents to 3 cents a share for its second quarter vs. the
First Call/Thomson Financial
estimate of 8 cents.
Santa Cruz Operation
(SCOC)
was down 26.9%. The company, which provides computer network software, said it expects revenue and earnings for its third quarter to be lower than analysts' estimates. Revenue is expected in the range of $26 million and $28 million compared with $57.1 million in the third fiscal quarter of 1999. The company said it expects a net loss to be in the range of 50 cents to 55 cents compared to the 13-cent loss estimate from First Call. The company cited a slower-than-expected recovery in sales after Y2K computer concerns began to wane, and that several major government contracts were delayed past the end of the quarter.
Also, shares of digital video company
Pinnacle Systems
(PCLE)
were down 59.9% after the company said its earnings will be significantly lower than analysts had expected. For its fiscal fourth quarter that ended June 30, Pinnacle said it will earn 6 cents to 8 cents a share vs. the 16-cent analyst consensus. Maybe they should call it Valley.
On the flip side, shares of
Alteon WebSystems
(ATON)
were up 22.7% after the company said it had reached operating profitability in its fourth quarter, three quarters ahead of previous expectations. The company, which makes Web switches, server adapters and traffic management software, also said it expects to post revenues of about $51 million, an 80% sequential increase over the previous quarter. Expectation was for a loss of 1 cent a share.
Elsewhere,
VoiceStream Wireless
(VSTR)
was among the big movers, up 11.8% on news that it could be acquired by
Deutsche Telekom
(DT) - Get Dynatrace, Inc. Report
. According to
The Wall Street Journal
, Deutsche Telekom was in serious talks to acquire VoiceStream in a deal that could be valued at significantly more than $40 billion.
Among traditional Internet plays,
Amazon.com
(AMZN) - Get Amazon.com, Inc. Report
, down 4.6%, was seeing no benefit from positive comments about the online retailer's sales of the new
Harry Potter
book. According to a note from
Donaldson Lufkin & Jenrette
, Amazon said it had received orders for 390,000 books through Sunday night, which was comparable to the 402,000 copies sold by
Barnes & Noble's
retail outlets.
Barnes & Noble.com
(BNBN)
sold 100,000 copies of the book, according to the company. It was down 1.9%.
DLJ analyst Jamie Kiggen noted that the scale of Amazon's operations was giving the company "considerable leverage with suppliers and cooperation from its shipping partners," pointing out that Amazon shipped the first 250,000 orders for Saturday delivery with cooperation from
Federal Express
. He noted that weekend revenue from the book could be greater than $7 million, and 1/5 of the orders were from new customers.
And in a note from
Salomon Smith Barney
, analyst Tim Albright wrote that due to the free shipping, he estimated that Amazon lost $351,250 on the first 250,000 orders and gained $448,865 on the following orders for a net gross profit of $97,615. Including a 10% distribution cost, Amazon had a negative product contribution margin of $546,451 on the promotion, he wrote. But he noted that it added new customers at a small cost of $7.69 per customer.
Also,
Yahoo!
(YHOO)
, which reports earnings after the close today, was down 5.8%.
CNBC
was reporting that
Morgan Stanley Dean Witter
analyst Mary Meeker had made some comments on Yahoo!, though there was some uncertainty as to whether the comments were positive or negative.
CNBC
claimed Meeker remained positive on Yahoo!. Yahoo! is expected to report earnings of 10 cents a share for the quarter.
