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 0.2% versus the S&P 500, which was down 0.8%. Laggards within the Internet industry included LookSmart ( LOOK), down 4.5%, Internet Initiative Japan ( IIJI), down 2.8%, Taomee Holdings ( TAOM), down 2.4%, Geeknet ( GKNT), down 1.6% and Tremor Video ( TRMR), down 1.5%.

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

Taomee Holdings ( TAOM) is one of the companies that pushed the Internet industry lower today. Taomee Holdings was down $0.08 (2.4%) to $3.30 on light volume. Throughout the day, 2,835 shares of Taomee Holdings exchanged hands as compared to its average daily volume of 15,500 shares. The stock ranged in price between $3.20-$3.34 after having opened the day at $3.30 as compared to the previous trading day's close of $3.38.

Taomee Holdings Limited operates as a children's entertainment and media company in the People's Republic of China. It operates through two segments, Online Business and Offline Business. Taomee Holdings has a market cap of $121.1 million and is part of the technology sector. Shares are down 2.0% year-to-date as of the close of trading on Thursday. Currently there are no analysts who rate Taomee Holdings a buy, no analysts rate it a sell, and 1 rates it a hold.

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TheStreet Ratings rates Taomee Holdings as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income.

Highlights from TheStreet Ratings analysis on TAOM go as follows:

  • TAOM has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.18, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for TAOMEE HOLDINGS LTD -ADR is currently very high, coming in at 74.54%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, TAOM's net profit margin of 8.37% significantly trails the industry average.
  • The revenue fell significantly faster than the industry average of 26.4%. Since the same quarter one year prior, revenues fell by 15.9%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • TAOMEE HOLDINGS LTD -ADR's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, TAOMEE HOLDINGS LTD -ADR reported lower earnings of $0.15 versus $0.23 in the prior year. For the next year, the market is expecting a contraction of 133.3% in earnings (-$0.05 versus $0.15).
  • 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 Software industry. The net income has significantly decreased by 51.5% when compared to the same quarter one year ago, falling from $2.40 million to $1.17 million.

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

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At the close, Internet Initiative Japan ( IIJI) was down $0.28 (2.8%) to $9.90 on average volume. Throughout the day, 4,201 shares of Internet Initiative Japan exchanged hands as compared to its average daily volume of 3,700 shares. The stock ranged in price between $9.85-$10.38 after having opened the day at $9.99 as compared to the previous trading day's close of $10.18.

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 $949.2 million and is part of the technology sector. Shares are up 1.8% year-to-date as of the close of trading on Thursday. Currently there is 1 analyst who rates Internet Initiative Japan a buy, no analysts rate it a sell, and 1 rates it a hold.

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TheStreet Ratings rates Internet Initiative Japan as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.

Highlights from TheStreet Ratings analysis on IIJI go as follows:

  • Although IIJI's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.23, which illustrates the ability to avoid short-term cash problems.
  • The revenue fell significantly faster than the industry average of 28.8%. Since the same quarter one year prior, revenues fell by 13.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • 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 35.1% when compared to the same quarter one year ago, falling from $12.82 million to $8.32 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. When compared to other companies in the Internet Software & Services industry and the overall market, INTERNET INITIATIVE JAPAN INC's return on equity is below that of both the industry average and the S&P 500.

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

LookSmart ( LOOK) was another company that pushed the Internet industry lower today. LookSmart was down $0.04 (4.5%) to $0.85 on heavy volume. Throughout the day, 29,666 shares of LookSmart exchanged hands as compared to its average daily volume of 13,600 shares. The stock ranged in price between $0.80-$0.95 after having opened the day at $0.86 as compared to the previous trading day's close of $0.89.

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 $5.7 million and is part of the technology sector. Shares are up 24.5% year-to-date as of the close of trading on Thursday.

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.

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

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 36.8% when compared to the same quarter one year ago, falling from -$0.95 million to -$1.30 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. 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.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 61.98%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 27.77% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • LOOKSMART LTD's earnings per share declined by 27.8% 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 28.8%. Since the same quarter one year prior, revenues fell by 20.1%. 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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