Worries Keep Pressure on Net Sector Despite Yahoo!'s Rise

Yahoo!'s

(YHOO)

performance notwithstanding, it's been a ho-hum day in the Internet sector. Though there has been some positive news in the sector, yesterday's setback and concern of a pullback after the run-up in technology and Net stocks were keeping pressure on the sector.

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Message Boards.

TheStreet.com Internet Sector

index was recently up 1.66, or 0.2%, at 931.87, though it had reached a high of 946.86. Yahoo! continued to lead the way on the upside on news it would be added to the

S&P 500

index. Its stock was up 14, or 6.6%, at 226 3/4.

While some technical indicators have been

suggesting the Net sector was overdone on the upside, others are starting to suggest the same as well.

Barron's Online

had a detailed piece today suggesting business-to-business e-commerce stocks may have "hit a wall." And well-followed Net analyst Steve Harmon, CEO of

e-harmon.com

, put out a note today that suggested the potential for a 10% to 25% pullback in the Internet sector before year-end.

Harmon mentioned that huge run-ups in the sector have "indiscriminately raised expectations too high." He singled out

Akamai

(AKAM) - Get Report

, writing that he is a believer in Akamai the company, but not in Akamai "the instant gorilla (market cap seems way ahead of itself)." And he has the same thoughts for digital-subscriber-line stocks and business-to-business stocks "of all flavors."

Harmon also wrote that economic growth was "outpacing

Alan Greenspan's

abacus," and Y2K fears could trigger a tech-stock backlash. He also noted that too many weak IPOs "were diluting the Internet." But Harmon finished with positives about the Internet, saying he remains bullish for the longer term and that "corrections will come and go, but utility builds on itself."

Online brokerages were getting a lift after a note from

Hambrecht & Quist

that indicated online trading volumes were strong in November. Analyst Gregory Smith increased industry estimates for average daily online trades for the quarter from a 15%-to-20% sequential gain to a 25%-to-30% gain. Smith increased fourth-quarter per-share estimates for

E*Trade

(EGRP)

and

Schwab

(SCH)

by a penny each and for

Knight/Trimark

(NITE)

by 4 cents. In recent trading, E*Trade was up 3/16, or 0.6%, at 30 1/4, though it traded as high as 32. Knight/Trimark was up 7/8, or 2.1%, at 42 1/16, though Schwab was down 33/64, or 1.3%, at 37 7/8.

But news of strong online volumes in November should not be a surprise to readers of this space.

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duly noted a report from

Credit Suisse First Boston

analyst James Marks on

Monday that indicated trading volumes of online brokerages surged to record levels in November. But Marks also noted that trading online brokerage stocks based on short-term trading volume was "a fool's game that ultimately leads to losses."

While H&Q's Smith spoke positively of the online brokerage industry in general, perhaps more important is what's not in his note. Smith also covers three other online brokerage firms,

Ameritrade

(AMTD) - Get Report

,

DLJdirect

(DIR)

and

TD Waterhouse

(TWE)

, but he did not raise estimates on any of them.

Smith told

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that, unlike other companies, Waterhouse's fiscal year ends in October, so he did not change its estimate. But he said he didn't feel comfortable raising estimates on Ameritrade and DLJdirect because both have been spending large amounts of money to attract more accounts and he wanted to see whether those programs were working before upping numbers. In recent trading, Ameritrade was up 1/4, or 1.1%, at 22 7/8; DLJdirect was up 1/2, or 3.0%, at 17 1/16; and TD Waterhouse was up 1/16, or 0.4%, at 17 9/16.

Among other stocks in the news,

Exodus

(EXDS)

was up 3 1/16, or 2.8%, at 110 7/8 after its analysts meeting Tuesday.

Dain Rauscher Wessels

reiterated a strong buy rating on the stock and upped the price target on the stock to 150 from 100. Analyst Stephen Sigmond wrote that the December quarter was tracking ahead of expectations and near-term drivers on the upside include managed services and strong demand from Europe.

Also,

eToys

(ETYS)

, an obvious online commerce holiday play, was down 3 7/8, or 6.2%, at 58 3/4.

Dow Jones

reported that insiders recently filed to sell 600,000 shares of eToys stock. It indicated that

Idealab!

, which spawned eToys, intended to sell 500,000 shares on Nov. 22 and that Idealab! had previously registered to sell 1.5 million eToys shares on Nov. 2. eToys also said today that it has agreed to make a private placement of $150 million principal amount of 6.25% convertible subordinated notes due Dec. 1, 2004.