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Internet stocks tumble
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April 17, 1998: 1:06 p.m. ET
Analysts warn of short-term performance, but still are optimistic
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NEW YORK (CNNfn) - No one ever said the party would last forever.
Internet search engine companies have been the hottest stocks for the past few weeks. Yahoo! Inc., Excite Inc., Lycos Inc. and Infoseek Corp. all have been flying high.
But shares of Excite (XCIT) plummeted 9-5/8 to 81-1/2 in early trading Friday, a day after the company reported another quarterly loss. And Everen Securities downgraded Yahoo! (YHOO) Friday from outperform to market perform. Its shares fell 5-13/16 to 122-5/16.
Is this a sign that search engine stocks may be coming down from the clouds? Analysts think so, at least for the short term.
"The Excite news is a sign that the mania is over," said Adam Schoenfeld, senior analyst at Jupiter Communications. "These are good companies and they deserve high multiples. But the industry tends to move in lock-step and I think things are going to start to calm down."
Analysts have been saying all along that shares of search engine companies are overvalued, but this is the first time they've begun to show any signs of pessimism.
"When some kind of major hiccup occurs in the U.S. market, these companies will be the first to take a hit," said Aydin Tuncer, Internet analyst at S&P Equity Group. "These companies are 1 percent of the electronic commerce industry right now. They're a small piece of the pie they're all trying to get a slice of."
Steven Frankel, an analyst at Paragon Capital, is much more blunt that other analysts. He told CNNfn that he recommends shareholders of search engine companies to get out as soon as possible.
"These companies are not worth 50 times their sales and 200 times next-year's earnings," he said. "It's just not reality." (346K WAV) or (346K AIFF).
Nonetheless, other analysts have a positive outlook for the long-term growth of search engine companies. Even Anthony Blenk, who as vice president of Everen Securities downgraded Yahoo!, pointed out that he believes the company is fundamentally strong.
"I downgraded Yahoo! because the stock is too expensive and, more importantly, I'm concerned at the rapid pace at which it's moving," he said. "I am optimistic on their fundamentals, though."
Everen's downgrade, while not drastic, may be an omen of things to come for the rest of the sector. S&P's Tuncer believes that as Yahoo! goes, so goes the rest of the industry.
"When Yahoo! announced custom pages for its users, Excite came out with a similar page," he said. "Now Lycos is doing the same. These other companies seem to be followers."
Followers, indeed. Shares of Lycos (LCOS) dropped 5-5/16 to 72-1/2, while Infoseek (SEEK) shares fell 3-7/8 to 40-5/16. 
-- by staff writer John Frederick Moore
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