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From...
Net stocks come bouncing back
September
29, 1998
Web posted at 3:50 PM EDT
by Suzanne Galante, Kevin Kelleher and Cory Johnson
(IDG) -- For a while there it felt just like old times. Following two months of market turmoil that stripped much of the chrome off those glamorous Internet stocks, the sector returned to favor last week among Wall Street's fickle investors. Everyone's favorite Net stock, Yahoo, shot to a new record of $125 a full 10 points above its July peak. AOL and Amazon.com also regained a lot of the ground they had lost in the previous grueling weeks.
Most reasons offered by industry pundits to explain this sudden rally seemed spurious. Did posting President Clinton's testimony online really mark a turning point for the Internet? Is eBay really a powerhouse IPO that could reignite the offerings market?
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By the end of the week, the answer seemed to be, probably not. One trader described the renewed Net rally as "ill-advised bullishness, a twitch of irrational exuberance and a large pinch of exuberant short covering."
Yet beneath all the hype some headlines, while not half as titillating as anything coming from the Independent Counsel's office, offered signs of revenue growth. Excite lined up a deal to get in on Dell desktops. Disney said it would give Infoseek a radical makeover. And at the NationsBanc Montgomery Securities Conference, Yahoo CFO Gary Valenzuela said the company expects to boost quarterly gross profit margins to 30 percent by next September and annual margins to that level by 2000.
As a result, Wall Street again voted Yahoo most likely to succeed. All this year, Yahoo has shared with AOL and Amazon.com the status of bellwether Internet stocks. Now it's starting to look like Yahoo is pulling ahead. At its peak last week Yahoo had risen 81 percent from the end of August (40 percent alone following the new profit-margin numbers). AOL and Amazon.com, meanwhile, were up 46 percent and 40 percent, respectively.
Even more telling, Yahoo was the only company to break through the highs it reached in July before the subsequent market correction. Its high point of $125 last week was 20 percent above the watermark of $104 it had reached this summer. Amazon.com was still 20 percent below its midsummer high and AOL was down 16 percent.
Most of the tricks Yahoo uses to keep visitors on its site e-mail, chat, stock portfolios have been widely copied. But it has added them more quickly, and been smarter about adding them with the financial efficiency that investors respect. At the end of the most recent second quarter, Yahoo had grown its traffic by 21 percent from its first quarter to an average of 115 million pages a day.
Such numbers may not be as exciting as the sight of a president's humiliation online, but it will do for investors looking for winners in the Internet race.
Greenspan's game
Here's the thing about Federal Reserve Chairman Alan Greenspan: For all the attention paid to the guy what he says vs. what he's trying to say, where he goes, who he meets with he doesn't really say very much.
But this week he actually said something before Congress. The market did little until Greenspan expressed concern over the foreign economic crisis; then Wall Street went nuts anticipating lowered interest rates. The Dow jumped 257 points, reaching its highest levels since Aug. 27. Internet stocks like Amazon.com, America Online and Yahoo rallied right along with it.
But a day later, foreign worries resurfaced. Despite the success of Goldman Sachs' eBay offering, the market tanked amid questions about a plan to bail out the huge Long Term Capital hedge fund. Late Wednesday, rumors swirled that the fund which reportedly bet heavily on a foreign currencies rebound was about to go belly-up. A massive $3.5 billion bailout was hastily arranged by the New York Federal Reserve bank, and stocks were sold. The Dow was off 152 points, with tech stocks off nearly as much. The pain at Long Term Capital revealed just how shaky things still are out there in the world markets.
Hmm. Funny, I think that Greenspan guy was just saying something about that.