As bad as things were for Internet companies this earnings season, the next one looks worse. And, unfortunately, whether things will improve after that is anyone's guess.

Thursday's Coverage

Internet Companies Trudge Into the Fog

For Banks, Hitting the Loan Books

Previously

Getting a Handle on the Wireless-Handset Slowdown

Why This Earnings Season Has Been So Brutal

Earnings Burned Investors, but the Tech Fire Remains

With No Catalyst, Stocks Rumbling and Stumbling Through February

That leaves Net investors with a knotty problem. Do they assume that business picks up after the first quarter of 2001, and thus feel confident enough to start buying now? Or should they expect businesses and stock prices to take another substantial dive -- delaying their return to the market, or discouraging it forever?

The questions facing investors arise out of the worsening state of financial visibility, a topic covered by

TheStreet.com

in a recent article. Companies that once thought they were able to forecast their financial performance confess they've lost their predictive powers. Yet at the same time, companies are predicting a pickup in revenue later this year, based in part on seasonal patterns of strong fourth-quarter business -- seasonal patterns that, of course, didn't pan out in the fourth quarter of 2000.

Phil Leigh, digital media analyst at

Raymond James & Associates

, summarizes the situation for investors: "If you take companies' statements at face value, the March quarter is probably the worst quarter," he says. And

should

you take them at face value? "It is a coin toss," he responds, though he adds that for the most part, he's optimistic.

Half Empty

Yet other participants in the market see continuing gloom. "I think it's going to be more of the same," says an investment banker who works with Internet companies, speaking on condition of anonymity. "There's going to be continuing adjustment on guidance."

Ah, guidance -- the attempts that companies make to forecast their financial performance in upcoming quarters and years. If anything was a hallmark of this past earnings season, it was the transformation of guidance from a chummy nudgefest among companies and analysts to a panicked shot in the dark. In the ever-receding days of the great dot-com boom, guidance was a set of numbers to be beaten and raised, beaten and raised. Now it's something that's missed, or reached by the skin of one's teeth, then eased lower.

It all started with the Jan. 10 earnings call conducted by

Yahoo!

(YHOO)

, which lived up to its label of Internet bellwether by signaling where things were headed with full-year 2001 estimates: downward. Already expecting an unpleasant close to 2000, analysts had been expecting, going into the call, 2001 profits of 57 cents a share on revenue of $1.42 billion.

Yahoo! guided the numbers down to an earnings-per-share figure of 33 to 43 cents and revenue of $1.2 billion to $1.3 billion.

Blue Sky

Yahoo! also set the tone for the season by effectively promising that the bird in the bush is worth two in the hand. It did this by forecasting first-quarter revenue of no more than $240 million, well below the run rate necessary to meet the just-lowered full year forecast: After all, four quarters of $240 million won't even break $1 billion. But don't worry about the trend of revenue dropping more than 22% from the fourth quarter to the first, Yahoo! said; revenue in the second half of 2001 will more than make up for a weak first quarter.

This became a common refrain in earnings season, from

AOL Time Warner

(AOL)

all the way down to the struggling

NBC Internet

(NBCI)

, which insisted Tuesday night that it would spin $16 million of revenue in the first quarter -- that's a run rate of $64 million -- into full-year revenue of $100 million, a revenue target

reduced from $150 million in mid-January.

With companies mentioning "back-end-loaded" revenue and earnings so often, you'd think you were at a

station wagon convention. So analysts had a right to be skeptical about the earning season's much-promised late-2001 recovery. That's because the only thing that seems certain these days for Internet companies, for whom access to the capital markets has been near-eliminated, is cash.

In part, that means cash on hand to fund losses. But also, says Leigh, it's important to look at an Internet company's ability to do something other than sell advertising. "Those companies that are actually able to collect real revenues for additional, incremental services, and not adversely affect their traffic -- those companies are going to end up as big winners," he says. Those are companies such as Yahoo!,

eBay

(EBAY) - Get Report

and

Amazon.com

(AMZN) - Get Report

, none of which he covers.

"The free lunch is over," says Leigh.