Salomon cuts ratings on six Net media companies
Citing a skeptical market and an uncertain financial outlook for online media companies, Salomon Smith Barney downgrades six stocks in the sector that are trading at $5 or less.
Shares in bridal site The Knot, rewards site MyPoints.com, and women's site Women.com fell by more than 10 percent in late trading after Salomon cut their ratings to "neutral" from "buy."
The Knot fell as much as 18 percent to $2 a share, while MyPoints tumbled as much as 12 percent to $2.09 a share. Women.com fell as much as 11 percent to $1.28.
Other companies that received downgrades to "neutral" from "buy" included financial site CBS MarketWatch.com, Internet marketing and advertising company Avenue A, and messaging company Mail.com. But market reaction was mixed after the downgrades.
Shares in Mail.com slipped by as much as 5 percent to $2.97, and Avenue A edged down a mere 3 percent to $4.50. But MarketWatch gained 4 percent to $5.
The downgrades come as all of the stocks have already plunged from their 52-week highs: Avenue A is down from a high of $89, MyPoints has plummeted from $97.68, MarketWatch is off from $55.25, Mail.com is down from $29, Women.com has declined from $23.37, and The Knot is down from $21.
In a report, analyst Lanny Baker warned that investors should take a cautious and "highly selective" approach when investing in online media companies.
"Our ratings changes are intended to help emphasize and highlight our favorite names, more than to point out critical weaknesses perceived in the companies being removed from our recommended list," Baker said.
Nonetheless, he noted some concern with the operations of Women.com and MyPoints.
"Women.com has recently lost some ground in its chase of competitor iVillage," Baker said. "Reduced ad spending by online retailers who had previously employed Women.com as a media vehicle to reach their female customers has hit the company hard, and we expect (third-quarter) 2000 revenue to be 20 percent below our original expectations."
MyPoints, meanwhile, also encountered advertising problems.
"MyPoints was caught off base in (the third quarter of) 2000, with advertising rates that were well above market levels in a weakening environment," Baker said. "The recent pricing-volume-demand volatility in MyPoints' business suggests imperfect management controls."
The companies that remain on Salomon's recommended list include America Online, DoubleClick, CNET Networks (publisher of News.com), TMP Worldwide, GoTo.com, Yahoo, ValueClick and AOL Latin America.