How do you know when the euphoria has officially left the tech sector? The buzzword abuse declines dramatically.
In the good old days -- three months ago -- companies could throw any number of buzzwords in a press release, mention some confusing figures and get a nice stock pop. Companies would typically gain on news of some new Linux, wireless, Chinese business-to-business e-commerce solution. Just for good measure these companies would mention they also had plans for an Internet incubator.
Buzzword hype: Good riddance?
Those days of misleading, buzzword-laden press releases are over -- at least for now. It's amazing what some volatility can do. Not that we're complaining. We happen to like a bit of reality (profits, cash flow etc.) now and then.
Here's a look at some buzzwords that have lost the buzz:
Remember China.com (Nasdaq: CHINA)? The portal targeting a few gazillion folks saw shares soar to a high of 156, but now trades in the 50s. After China.com's success, the "targeting China" line was good for some serious gains. Software provider AsiaInfo (Nasdaq: ASIA) and telecommunications equipment vendor UTStarcom (Nasdaq: UTSI) both had successful IPOs with a little China buzz. Of course, both companies happened to have legit business models, but China euphoria pushed shares into the stratosphere.
Both UTStarcom and AsiaInfo are well off 52-week highs, but are well above their offering prices.
What a difference a few weeks of volatility makes. Sina.com (Nasdaq: SINA), a Chinese Internet portal, is trading above its IPO price of $17, but not by much. Portal wannabe AsiaContent.com (Nasdaq: IASIA) is well below an IPO price of $14. And both had blue-chip underwriters. Didn't matter. The buzz eroded quickly and so did the aftermarket returns.
This buzzword is dead. Just the mention of the open-source Windows alternative could drive any downtrodden stock into the stratosphere.
Once the buzz petered out, shares of Red Hat (Nasdaq: RHAT) and VA Linux (Nasdaq: LNUX) came crashing back to earth even though both firms are making nice strides. Execs at both companies will tell you it's good the hype is gone (sure it is), but it's more noteworthy to look at what those former Linux wannabes are saying these days.
Check out V-One (Nasdaq: VONE). In November, shares of V-One rocketed because its SmartGate virtual private network product was compatible with Linux. V-One shares surged around the same time VA Linux set the IPO record. Meanwhile, Corel (Nasdaq: CORL) was almost viewed as a real company because of Linux chatter.
"The growth of Linux as an enterprise solution has made clear the need for Linux compatibility at both ends of the VPN and we're pleased that SmartGate is the first to market with such a solution," said CEO David Dawson in a November statement.
What did V-One have to say about Linux in its first quarter earnings statement Thursday? Nada. The company didn't mention Linux once. Now the company is clearly on the Pocket PC/Windows CE bandwagon.
And Corel? Its "Linux powerhouse" merger with Inprise (Nasdaq: INPR) is on the ropes and now Corel is working the WAP, XML and ASP buzzwords.
Everyone wanted to be an Internet incubator in the first two months of the year. And then the IPO market dried up.
Real incubators -- CMGI (Nasdaq: CMGI), Internet Capital Group (Nasdaq: ICGE) and Safeguard Scientifics (NYSE: SFE) and the soon to be public idealab! -- have enough cash to wait for the bulls to return to Net stocks. However, these Net incubators have been whacked. CMGI is about $100 off its 52-week high and ICG is off $160 from its high.
"In periods of a bull market, CMGI trades at a premium," said Phil Leigh, an analyst with Raymond James. "If there's a six months to a year pullback in the IPO market you'll see that premium shrink. CMGI has plenty of liquidity though."
OK, the leading incubators will survive. But the tag-alongs, however, aren't playing up their likeness to CMGI and ICG these days. Internet.com (Nasdaq: INTM) used to say that it "continues to follow the path of CMGI and Internet Capital Group" in press releases. That practice ended in March when Internet.com replaced its press release tagline.
The B2B sector was whipsawed as every company on the planet used the B2B buzzword. B2BStores.com (Nasdaq: BTBC), a company with no revenue, even managed to have a successful IPO.
In hindsight, the B2BStores.com IPO may have been the top.
Aside from a slight rebound, B2B players such as VerticalNet (Nasdaq: VERT), PurchasePro.com (Nasdaq: PPRO), CommerceOne (Nasdaq: CMRC), Ariba (Nasdaq: ARBA) and FreeMarkets (Nasdaq: FMKT) are well off their 52-week highs.
Indeed, executives at legit B2B companies said the shakeout is healthy, but the days of buzzword abuse are over. B2BStores.com is hovering around 4, down from a high of 19 1/2.
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