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Ha. Right when you finally accepted that valuation really doesn't matter and that e-commerce stocks were preordained by the market gods to

just trade that way

, a little reality sets in.

Since the beginning of the year, a winter chill has set in among some of your favorite dot-com stocks, as the market has begun to mull interest rates and other real-world concerns. But not every dot-com has been hit. In some regards, the new year has seen the re-emergence of conventional investing discipline, as investors are starting to look toward the bottom line to separate winners from losers, rather than simply focusing on measures such as revenue and customer growth.

"We all know that at some point these companies have to stand on a fundamental economic basis," says Mark Rowen, e-commerce analyst for

Prudential Securities

. "The question is at what point does the market start paying more attention to that."

Guiding Light

The time may be now. With the


down more than 4% for the year and Internet Sector

index off 7%, analysts are saying concepts such as "mind share" and "stickiness" are taking a back seat to progress in areas such as gross profit margins.

That's the big-picture metric that's derived from dividing gross profits by revenue. While the number doesn't actually translate into whether a company is making money or not, it's being viewed now as a guiding light to whether a company is likely to do so in the future.

The sector's winners this month -- companies such as


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(EBAY) - Get eBay Inc. Report

, which are both up more than 20% -- notably feature rising gross profit margins. The losers -- names like

(AMZN) - Get Inc. Report




, which are down 19% and 39%, respectively -- are companies whose revenue growth hasn't managed to push them toward profitability.


"Right now we're seeing the market pay more attention than it ever has to gross margins," says Michael May, an analyst with e-consultant

Jupiter Communications

. "Unfortunately, none of the e-commerce companies that are poised to be shaken out are looking at it too closely themselves."

Or if they are, they haven't been able to figure out how to make sufficient progress. Take

Value America


, for example. The stock has lost two-thirds of its value since Nov. 23, and now trades around 5. The company's big offense, aside from well-documented managerial turmoil? Not being able to raise gross profit margins out of the single-digit arena despite triple-digit revenue growth.

Value America didn't immediately return phone calls for comment.

The focus on gross profits translates to less emphasis on price-to-revenue or price-to-book valuations. Instead, investors want to know how much companies are able to hold onto in the marketing gale that has continually blown revenue dollars out the back door.

Incremental Value

"You've got to look at the incremental value of your last marketing dollar," says Kian Ghazi, an analyst with

Midtown Research

in New York. "At some point, these companies are spending too much. It doesn't make sense. The question at the back of investors' minds is, are companies getting poor returns on their marketing dollars?"

That was the catalyst to selling in the e-commerce sector this year: Namely, when

said that while its revenue was growing, profits wouldn't be forthcoming in the near future because of increased expansion costs.

Still, not everyone is convinced that a profit-now mentality is the right one. After all, as larger companies become more dominant in the space, it will only become more expensive, not less, to attract attention to a dot-com name.

"I would still focus on the top line," says James Vogtle, director of e-commerce research for the

Boston Consulting Group

. "Of course, you want to see the progression toward profitability, but it will likely not be any cheaper to acquire customers than it is now."

Instead, he says investors should look for companies with defensible business models that have the potential to become profitable with a fast-growing customer base.

"If a company said, 'No, I'm not going to grow my customer base as fast as I possibly can because I want to see profit,' I think that's far too short term," he says. "They're forfeiting a long-term revenue stream in order to achieve a profitable quarter."

Of course, the best of both worlds would be having a company that's expanding its customer base while driving its gross margins onward and upward. But those companies are still the rare gem, and not the average, in the e-commerce space.