3 Stocks Pushing The Internet Industry Lower

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

The Internet industry as a whole closed the day down 2.0% versus the S&P 500, which was down 1.1%. Laggards within the Internet industry included LookSmart ( LOOK), down 9.4%, Net Element ( NETE), down 7.4%, ChinaNet Online Holdings ( CNET), down 2.6%, Internet Initiative Japan ( IIJI), down 3.3% and SMTP ( SMTP), down 1.9%.

TheStreet Ratings Group would like to highlight 3 stocks that pushed the industry lower today:

Internet Initiative Japan ( IIJI) is one of the companies that pushed the Internet industry lower today. Internet Initiative Japan was down $0.39 (3.3%) to $11.54 on average volume. Throughout the day, 5,090 shares of Internet Initiative Japan exchanged hands as compared to its average daily volume of 4,100 shares. The stock ranged in price between $11.54-$11.74 after having opened the day at $11.74 as compared to the previous trading day's close of $11.93.

Internet Initiative Japan Inc., together with its subsidiaries, offers Internet connectivity, WAN, outsourcing, and systems integration services primarily in Japan. The company operates in two segments: Network Services and Systems Integration Business, and ATM Operation Business. Internet Initiative Japan has a market cap of $1.1 billion and is part of the technology sector. Shares are down 9.8% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Internet Initiative Japan as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from TheStreet Ratings analysis on IIJI go as follows:

  • The revenue growth came in higher than the industry average of 21.2%. Since the same quarter one year prior, revenues rose by 33.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.31, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.28 is sturdy.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 31.47%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 32.00% compared to the year-earlier quarter. Looking ahead, the stock's sharp decline over the past year may have been what was needed in order to bring its value into alignment with its fundamentals and others in its industry.
  • INTERNET INITIATIVE JAPAN INC's earnings per share declined by 32.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern earnings per share over the past two years. During the past fiscal year, INTERNET INITIATIVE JAPAN INC reported lower earnings of $0.49 versus $0.69 in the prior year.

You can view the full analysis from the report here: Internet Initiative Japan Ratings Report

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At the close, ChinaNet Online Holdings ( CNET) was down $0.02 (2.6%) to $0.75 on light volume. Throughout the day, 1,251 shares of ChinaNet Online Holdings exchanged hands as compared to its average daily volume of 39,800 shares. The stock ranged in price between $0.75-$0.78 after having opened the day at $0.78 as compared to the previous trading day's close of $0.77.

ChinaNet Online Holdings, Inc., through its subsidiaries, provides business-to-businesses Internet services for small and medium enterprises (SMEs) sales networks in the People's Republic of China. ChinaNet Online Holdings has a market cap of $17.2 million and is part of the technology sector. Shares are down 8.3% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates ChinaNet Online Holdings as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and weak operating cash flow.

Highlights from TheStreet Ratings analysis on CNET go as follows:

  • CHINANET ONLINE HOLDINGS has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern earnings per share over the past two years. During the past fiscal year, CHINANET ONLINE HOLDINGS swung to a loss, reporting -$0.01 versus $0.13 in the prior year.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Media industry. The net income has significantly decreased by 248.9% when compared to the same quarter one year ago, falling from $1.25 million to -$1.86 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Media industry and the overall market, CHINANET ONLINE HOLDINGS's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$0.06 million or 102.18% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • 49.93% is the gross profit margin for CHINANET ONLINE HOLDINGS which we consider to be strong. Regardless of CNET's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CNET's net profit margin of -27.02% significantly underperformed when compared to the industry average.

You can view the full analysis from the report here: ChinaNet Online Holdings Ratings Report

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LookSmart ( LOOK) was another company that pushed the Internet industry lower today. LookSmart was down $0.18 (9.4%) to $1.74 on light volume. Throughout the day, 2,372 shares of LookSmart exchanged hands as compared to its average daily volume of 11,700 shares. The stock ranged in price between $1.74-$1.86 after having opened the day at $1.86 as compared to the previous trading day's close of $1.92.

LookSmart, Ltd. provides search and display advertising network solutions in the United States, Europe, the Middle East, and Africa. LookSmart has a market cap of $10.5 million and is part of the technology sector. Shares are down 11.2% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates LookSmart as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, disappointing return on equity and generally disappointing historical performance in the stock itself.

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Highlights from TheStreet Ratings analysis on LOOK go as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 30.1% when compared to the same quarter one year ago, falling from -$1.46 million to -$1.90 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, LOOKSMART LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • In its most recent trading session, LOOK has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • LOOKSMART LTD's earnings per share declined by 37.5% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, LOOKSMART LTD continued to lose money by earning -$0.93 versus -$1.92 in the prior year.
  • The revenue fell significantly faster than the industry average of 21.2%. Since the same quarter one year prior, revenues fell by 47.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

You can view the full analysis from the report here: LookSmart Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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