Net Stocks Push Nasdaq Lower With Late-Day Selloff

The technology-loaded index finished the day down roughly 35 points as a result.

Author:: David Shabelman
Publish date:: May 20, 1999 4:57 PM EDT

SAN FRANCISCO -- It's too bad that Alan Greenspan and Bob Rubin didn't misread the topic for their testimony to the House Banking Committee earlier today. We would rather have heard them talk about Internet finance issues rather than the international finance issues they attacked with vigor.

The point is that there now is a lack of news in a sector that is in constant need of good news to keep investors encouraged about paying outrageous sums of money for companies that have out-of-this-world valuations and may not produce profits until well into the next millennium. Internet stocks were mostly weaker today, and the sector appears to be lacking a focus -- but that could change quickly.

Bruce Smith, Internet analyst with

Jefferies

said he's telling people "they should be buying now," in advance of what should be a strong seasonal period for Net stocks. Having studied an index of Internet stocks over the past 13 months, he's determined that the third month of every quarter is a big one for Internet stocks and that June should follow that pattern.

It should be noted, though, that Smith uses mainly the biggest and most successful of the Internet companies, including

America Online

(AOL)

Yahoo!

(YHOO)

and

@Home

(ATHM) - Get Report

, though some of the smaller Net companies like

Egghead.com

(EGGS)

and

Onsale

(ONSL)

also are included.

Smith said you will begin to hear talk about second-quarter earnings in June, and he is looking for strong numbers that have the potential to be "blowout numbers." In addition, he said there are a number of technology conferences scheduled for June that will provide a steady news flow. Smith also said he is not overly concerned with valuations, explaining that during the "hypergrowth phase" that Internet stocks are going through, "looking at valuations tends to be wrong."

Today's Movers

Late selling among Internet stocks put a hurt on the

Nasdaq

, which ended the day 35 points lower.

Losses came despite a strong performance by

eToys

(ETYS:Nasdaq), the Web-based retailer of children's products. The stock soared on its first day of trading, closing up 56 9/16, or 283%, at 76 9/16.

Shares of

CNet

(CNET) - Get Report

rallied on news that the company would be added to the

Nasdaq 100

index at the close of trading May 24. CNet will replace

McCormick

(MCCRK)

, which is delisting from the index. It closed up 6 1/16, or 5%, at 125 3/4, though that was off the session high of 137.

America Online was unable to hold gains made early on following its meeting with investors and analysts on Wednesday, as traders bought the rumor and sold the fact. It closed down 5 7/16, or 4%, at 129 1/16 after reaching a high of 137 15/16 earlier in the session. The stock's inability to maintain momentum contributed to weakness among Internet stocks.

Not helping the slide was

Amazon.com

(AMZN) - Get Report

, which slipped on news that the company filed a $2 billion shelf offering, with the proceeds to be used for expansion. Amazon.com closed down 8 3/4, or 6%, at 130 13/16.

Also on the downside was

Etec Systems

(ETEC)

after the semiconductor equipment maker missed third-quarter earnings estimates by a penny on Wednesday and warned of losses in the fourth and first quarters.

Credit Suisse First Boston

downgraded the stock to hold from buy. It closed down 5 5/8, or 16%, at 30 3/8.

On the upside were a couple of companies that make data-storage products. Computer networking equipment and software maker

Emulex

(EMLX)

soared more than 20% today after the company sold 2.1 million additional shares to the public at 61. It closed up 12 1/4, or 19%, at 75 1/2, though that was off a session high of 81 3/4.

Following Emulex was

QLogic

(QLGC)

, which makes chips that allow disk drives, CD-ROMs and computers to communicate with each other. The stock has been on a tear since reporting record earnings earlier this month. It closed up 13 1/2, or 13%, at 116 7/8. Shares of the company were trading at 75 7/8 before it reported earnings on May 6.