One reason: The e-tailers are seen as potential acquisition targets, either by the portal companies or by real-world retailers who want to jump-start their Internet efforts. Analysts also say the e-tail sector has lagged other Net stocks lately.
"I think many Internet retailers are acquisition plays," said Genni Combes, e-commerce analyst at brokerage Hambrecht & Quist, who declined to name specific companies. "The portals are showing more interest in e-commerce, although they're probably more interested in bits than being in the warehouse and distribution business." That would make them more likely to buy software retailers or services businesses than Net merchants who ship hard goods.
Lauren Cooks Levitan of BancBoston Robertson Stephens thinks brick-and-mortar retailers will be shopping soon for Internet outlets because buying a going concern would give a buyer more bounce per buck. She's not shy at naming Preview Travel, whose CEO resigned last week, as a company that may be up for sale.
Both Combes and Levitan think Net retailer stocks are down a bit because of the season--for many retailers, on the Web and off, the fourth quarter is their strongest quarter, and investor interest has followed the same trend.
Another factor in the drop-off in Net retail stocks has been the absence of news, particularly with the year-end 1998 earnings season largely over.
Ryan Jacob, portfolio manager for the Internet Fund, said Internet retail stocks "got a little extended" between Thanksgiving and New Years Day, when media hype about online shopping was at its peak.
"Internet retail stocks probably got ahead of themselves in that period," said Jacob, who still holds Amazon.com, a widely recommended stock on Wall Street.
Jacob also thinks some investors have been spooked by "the threat of the fixed-cost retailers like Buy.com and Onsale's AtCost service." That model sells goods at wholesale plus a small per-transaction charge--$5-10 for Onsale.
Levitan cautions investors to be careful in picking e-tail stocks.
"There are going to be very few winners. If what you need is scale, and being first, then by definition there won't be many that make those claims," she said. Robertson Stephens has Amazon, E*Trade, eBay, and Preview Travel on its buy list.
"eBay has an open-ended market opportunity--you can't even size this market," Levitan said. "The attractiveness of that business model, the advantage they continue to hold with 80 percent market share, is very compelling. Over time, we will see the numbers catching up with the stock," she said, urging investors to buy when eBay's price dips.
Levitan, who also follows the traditional retailers, sees promise in "hybrids" that have both online and brick-and-mortar businesses, recommending Ann Taylor, The Gap, Home Depot, and Williams Sonoma.