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A Net blip, or a backslide?
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January 12, 1999: 3:29 p.m. ET
After accelerating their already soaring gains, Internet issues take a dip
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NEW YORK (CNNfn) - Whether it's a hint investors are having second thoughts about the fiery Internet stocks for the long term or just a momentary blip on a trek upward, the top Net issues headed lower Tuesday after an explosive start to the week.
Yahoo! (YHOO), which reports financial results after the close Tuesday, lost 38-3/8, or 9 percent, to 376-1/8; Lycos (LCOS) fell 28-15/16, or 12 percent, to 102-1/16; Excite (XCIT) dipped 10, or 12 percent, to 73-3/4; Infoseek (SEEK) fell 4-1/8, or 4.7 percent, to 83-5/8, and Go2Net (GNET) tumbled 21-15/16, or 18 percent, to 98.
Infoseek was launching its Go Network web site with deep-pocket partner Disney (DIS) Tuesday.
Also pulling back sharply were Web community provider GeoCities (GCTY), off 9-13/32, or 12 percent, at 66-23/32, after gaining 39 percent Monday; Internet service provider MindSpring Enterprises (MSPG), shedding 21-1/4, or 18 percent, to 94-1/2 on the heels of Monday's 24 percent gain; and Net investor CMG Investment (CMGI), down 7 to 129, or 5 percent, after rising 35 percent the day before.
Slippery slope ahead?
A growing number of analysts -- no doubt wary they won't be seen as Cassandras who warned of a downturn for the sector -- have emerged to talk down the sector's prospects.
While most have been predicting the sector will reverse course and head lower, the concern now is that Internet stocks may take the rest of Wall Street with them.
"I hope when the Internet bubble bursts -- and it will burst because all these manias eventually do burst -- what I am hoping is when it bursts it does not spill back over into the market," said Vince Farrell, chief investment officer with Spears, Benzak, Salomon & Farrell.
"I do not think that it will, because I think people look upon these as being a separate world unto itself . But that is the danger in my mind," he added.
But Jon Burnham, chairman and chief executive of Burnham Securities, believes a spillover is inevitable.
"I think [investors] are setting themselves up for a tumble," Burnham said. "There isn't any specific psychological reason why [this mania] should drag the rest of the market lower, but typically they do. You get all kinds of margin calls in these things. People then have to sell other stocks."
Few Internet firms in the black
Other analysts say they are treading lightly about Internet companies, many of which have yet to post a profit. In fact, according to tracking firm First Call, only 6 out of 21 of pure Internet companies generate earnings.
Some Web watchers say Internet businesses may have to pave their own way this year.
"In the second half of 1999, we'll clearly see probably 10 to a dozen large Internet companies that are profitable, and, at that point, if some of the smaller companies cannot demonstrate clear progress toward profitability, then you would see the premium going towards those that are profitable and away from those that are not," said Dan King, an Internet analyst with LaSalle Street Securities.
Unprofitable companies that do demonstrate clear progress can expect continued support from investors. Industry watchers say as more Net firms move into the black, it will become more clear which others can expect to turn a profit in the future.
"As we learn and see more revenues and earnings from these companies, we will get a sense of exactly what is an appropriate growth rate and what is an appropriate business model for this medium." Chris Charon, Internet analyst at Forrester Research, said.
At the same time, rapid and ongoing changes in the industry could still make it hard to identify sure winners and losers. Uncertainty, combined with exciting new technologies and business strategies, will keep earnings from being the key focus for Web investors and stave off any major shakeout in the industry for now.
"This is an incredible thing that's going on in these stocks and it's going to continue for a while until something happens to change it," analyst Burnham said. 
-- by staff writer Jamey Keaten with reporting by CNNfn.
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