The recent run-up in certain Internet shares is hitting another valuation wall.

Take online sporting goods retailer Global Sports ( GSPT) and Internet communications firm WebEx ( WEBX), for example.

After hitting lows in the single digits last spring, shares of both companies more than quintupled through the end of 2001. After the dot-com rout, some businesses that had a chance of survival looked cheap, analysts said. But at 58 and 56 times 2002 earnings, respectively, Global Sports and WebEx might not look so cheap anymore.

On Thursday, Global Sports ( GSPT) reported pro forma earnings of 6 cents a share, beating analyst estimates by a penny. The company's net profit totaled $300,000, or 1 cent a share, compared with a loss of $11 million, or 41 cents per share, in the year-earlier period. Meanwhile, revenue was $51.4 million, up from $20.3 million in the year-earlier quarter. For 2002, the company forecast revenue of $200 million, up from $102.6 million in 2001, and pro forma income of $11 million, or 24 cents per share.

Investors weren't pleased with the report. After soaring to $20 in January from a low of $2.37 in March of last year, the stock closed down Thursday $1.65, or 11%, at $13.79.

"Last year, people had given up the Internet marketing areas up for dead," said Subodh Kumar, chief strategist at CIBC World Markets. "But into the Christmas season, there were signs that Internet shopping was picking up a little bit. That was a bit of a surprise," he said. "The focus now is on how sustainable the earnings are."

Soundview analyst Shawn Milne said he still thinks Global Sports has a strong business outlook. "I think there's a lot of leverage in the model, because it's a low-fixed-cost model. Once they get past break-even, they'll be adding a lot of revenue," he said.

Robertson Stephens reiterated their buy rating on the stock, while US Bancorp Piper Jaffray reiterated its market outperform rating.

Wired

Internet communications firm WebEx ( WEBX) has been even harder hit. The company's shares jumped to $24 at the beginning of this month from $5 last March, and were sporting a price to earnings valuation, based on projected 2002 earnings of 25 cents, of 100 as recently as Monday.

But the company's shares have fallen precipitously since reporting fourth quarter earnings on Tuesday. WebEx reported a penny profit for the fourth quarter, beating expectations. It also said 2002 revenue would fall between $140 million and $141 million, compared to previous estimates for between $136 million and $150 million. The stock lost 24% Wednesday and another 14% Thursday to $14.49.

"Because it's in the Web-based communications space, the stock took off psychologically following Sept. 11. Air travel became unpopular and everyone thought more people would be doing business on line," said Anne Marie Rahm, an analyst at Adams, Harkness & Hill.

There are several issues facing WebEx, says Rahm. Investors fear growing competition from the likes of Microsoft ( MSFT) and Oracle ( ORCL). WebEx is also terminating contracts with small nonpaying customers, as it tries to gain a greater foothold in the enterprise market. "There are questions about how quickly they can do that versus how quickly they can bring on more enterprise customers," she said. Finally, 40% of those who own the stock represent short interest -- are betting the stock will go down -- which makes for illiquid trading.

Still Rahm defends the current stock price, considering revenue growth projections of 73% for 2002 and 65% in 2003. "Market leaders and innovators always trade at premiums," she said. Long-term, revenue growth should slow to 40-50%, she says, "but they haven't reached critical mass yet, so they're still in the growth phase."

Jeffries & Co. put out a note on the stock titled, "Overreaction Creates Buying Opportunity." Both Rahm and Jeffries analyst Peter Martin have buy ratings on the stock.

Don't Ask

Question-and-answer search service AskJeeves ( ASKJ) was probably the most glaring of Thursday's Internet losers. Back in 1999, the stock had a hefty share price of $190, but by January of last year, it had crashed to $2. It hasn't gotten back off the ground since.

The company reported a fourth-quarter net profit Thursday, escaping a loss due to a one-time gain from the closure of a joint venture with Univision Communications ( UVN). But the shares fell 47% to $1.55.

Excluding a $7.9 million restructuring charge and the one-time gain of $13.4 million and other items, Ask Jeeves lost $3.5 million, or 9 cents a share. In the year ago quarter, the company posted a loss of $18.7 million, or 53 cents a share. Including all items, the company earned $1.4 million, or 3 cents a share, compared with a loss of $62.0 million, or $1.74 a share, in the same quarter last year.

The company forecast a pro forma loss of 50 cents a share in 2002, with revenue up 20% from 2001.

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