Lazy Days of Summer Weigh Net Stocks Down

One analyst says the sector's stagnating partly because investors are not impressed with just good earnings reports anymore.
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SAN FRANCISCO -- Internet stocks have had a relatively quiet earnings season, with few surprises affecting the sector in either direction. Today's been a mostly down day for the Net stocks, with TheStreet.com Internet Sector index recently down 5.30, or 0.8%, at 644.41.

Sara Zeilstra, associate director at

Warburg Dillon Read

, said the sector has not shown much movement in the reporting season for a few reasons. First, she noted that solid earnings reports have been well anticipated and investors have been "conditioned to expect them," so they don't generate much enthusiasm when they are issued. Second, she said that while companies may beat Street estimates, they often are just hitting whisper numbers already in the market.

She added that investors are playing a seasonality game, knowing that the summer is typically slow for the sector and people are waiting for things to pick up in the fall when children go back to school and more people start using the Internet as the weather cools.

Earnings reports will pick up next week, with

America Online

(AOL)

,

Excite@Home

(ATHM) - Get Report

,

Amazon.com

(AMZN) - Get Report

,

DoubleClick

(DCLK)

,

Infoseek

(SEEK)

,

Beyond.com

(BYND) - Get Report

,

Network Solutions

(NSOL)

and

E*Trade

(EGRP)

among the Net companies scheduled to report.

Zeilstra said that even with so many companies reporting, she doesn't expect a huge reaction unless "there is a constant theme that people weren't expecting," such as companies hedging their bets for the second half of the year. She said that the tendency for traders to buy ahead of earnings and sell afterward could continue regardless of the numbers, and that sometimes "it's more valuable to be a psychiatrist in this area rather than an analyst."

Finally, the sector has seen a number of mergers this week, but they have not carried the

premium that investors have been used to seeing.

On the flip side, Zeilstra said that there also are few reasons to drive prices lower, and some of those reasons are the same ones she mentioned why the sector was not rallying: generally good earnings and a positive seasonal standpoint ahead. And there really hasn't been any bad news to affect the sector, she said.

Today's Activity

Online brokerages were weaker after

Schwab

(SCH)

reported earnings that beat Street estimates, but the company warned that its profit margin in the second half of the year would "move back toward the levels we've achieved in recent years" due to its "ongoing investments in people, technology and our brand" as well as the recent rate hike.

Schwab was recently down 2 13/16, or 5%, at 52 9/16. E*Trade was down 1 3/16, or 3%, at 37 13/16, and

Ameritrade

(AMTD) - Get Report

was down 1 3/8, or 4%, at 34 9/16.

On the upside, two IPOs were among the best-performing stocks today.

Paradyne Networks

(PDYN)

, a DSL equipment provider, was up 37, or 218%, at 54. And

Audible

(ADBL)

, which offers spoken audio of books, newspapers and magazines on its Web site, was up 14 1/2, or 161%, at 23 1/2.