"You have six months to live."
"I'd like a second opinion."
"Fine, you're ugly, too."
If you're an Internet CEO, you probably should have stayed in bed this morning. Would have been the best choice.
While a publication's intent isn't necessarily to slam a sector, it was bound to happen today after this week's cover story in
, "Burning Fast," which suggested at least 50 Internet companies, based on fourth-quarter 1999 expenses and revenues, have less than a year to live.
The article has knocked down shares of Internet companies of all stripes -- from the highflying, seemingly invincible such as
, down 21 5/8 to 199, a 9.8% drop, to the seventh-place horses
headed for the glue factory, like
, off 13/16 to 2 3/4.
Professional traders weren't surprised this morning -- either at the selloff or at
deductions -- because analysts have been cautious about these stocks for some time, and because many high-profile Net stocks lost much of their luster last year, such as
"They've got a good point," said Paul Rich, trader at
. "I promise these things didn't run up on earnings, they ran up on expectations, and sooner or later they have to deliver.
Internet companies are going to come along, but these might not be the companies that stick around."
All of the top 20 stocks that
calculated as having the shortest remaining life span were down today.
Pilot Network Services
, which topped the list, opened down 8 points and was lately off 5 3/16 to 44 11/16; second-place
was down 13/16 to 5 15/16, after opening at 6 11/16, and seventh-ranked
was down 1 1/2 to 6 7/8 after opening at 8 1/4.
Henry Blodget, Internet analyst at
, questioned some of
methodology while agreeing with the overarching point that many of these companies are in trouble. He said in a note today that some of the names are on their way to profitability and a significant number of them have raised money through the capital markets, which will help their cash position in coming months.
Blodget, however, had warned about the possibility of extinction for many Internet companies just last week.
Glen Santangelo, health care services analyst at
Salomon Smith Barney
, also voiced some concerns about the story in a note published this morning.
"Although we agree with some of the conclusions of the study, we believe the study was fundamentally flawed as it just extrapolated 4Q99 results," he wrote. "In particular, we believe that the study misrepresents the financial position (solvency) of
The TriZetto Group
Healtheon/WebMD was ranked 30th and TriZetto was ranked 77th. (Salomon does not have a banking relationship with either company.)
"We believe it is highly inaccurate to analyze Healtheon/WebMD based upon
fourth-quarter 1999 results in light of all the recent acquisition activity and the $930 million investment made by
in the current quarter," Santangelo said. "We also believe that the study's financial assessment of TriZetto is highly inaccurate. We are estimating over a 100% increase in revenues in the current year and a 56% increase in 2001."
"This is a broader dissemination of what the professionals who follow this group have been warning about for a while," said Bill Schneider, head of U.S. equity block trading at
SBC Warburg Dillon Read
But that greater dissemination has these stocks plummeting because as Tim Grazioso, manager of
, put it, many investing in Net stocks have short-term trading objectives, and they're constantly looking out for a news nugget to get in or out of a position.
"Whenever something like this comes out, and it's held by lot of people who own the stock for a trade, it has more of an effect than if it were held by institutional customers or people with longer-term objectives," he said.
Obviously, a stock like Peapod, which is already in trouble, is going to have a hard time recovering. But the stocks of many Net companies fell in early 1999 and have rebounded.
the article was a bold call, and they believe in the buoyancy of these stocks and that they are going to make money," said Rich. "And if they get burnt, they get burnt."