Profit taking took its toll on technology stocks this week as portfolio managers did some end-of-the-quarter window dressing. Internet stocks were especially hard hit, making next week's earnings report from Yahoo! all the more important.
For the week, the Dow Jones industrial average fell 190 points to 10,921.92 while the tech-laden Nasdaq composite plunged 391 points to close at 4,572.59.
"The 'buy the dip' strategy is not working this time, as so many of the previously hot stocks are now retracing their entire previous advances," said Robert Dickey, technical analyst at Dain Rauscher. "Before it's over, the previous mood of euphoria will turn to panic, and judging from the number of investors who are trying to catch the falling knives, we aren't there yet."
Most analysts are quite ready to concede any type of panic in the technology sector. In fact, most say they're scouring tech stocks to find the next emerging sector.
Along those lines, Seagate Technology (NYSE: SEG) made some big news this week when it announced a landmark plan under which the disk-drive maker will become a private company.
Under the terms of a $20 billion agreement unveiled after market close Thursday, the storage technology company would sell its 33 percent stake of Veritas Software (Nasdaq: VRTS) back to Veritas while a private investment group led by Silver Lake Partners would buy Seagate's operations for cash. The parties valued the deal at $20 billion, or roughly $77.50 per Seagate share, a 26 percent premium to Seagate's average price over the last 30 days.
Seagate officials said the move will give it an opportunity to invest in new types of data storage technologies away from the watchful eye of Wall Street. It's possible Seagate may eventually return as a public company, a prospect that not only would line investors' pockets but give other struggling or even prosperous technology companies something to ponder.
Looking ahead to next week, Yahoo! Inc.'s (Nasdaq: YHOO) first-quarter earnings report will dominate the news. Internet stocks have taken the brunt of this recent selloff and there's no better company to rejuvenate the sector than Yahoo!.
First Call consensus expects it to earn 9 cents a share.
Analysts will be paying close attention to its traffic and subscriber base, but advertising sales will be in the limelight.
In December, Yahoo! reported more than 120 million unique users, doubling the 60 million users it recorded in the year-ago quarter.
Its registered user base grew to more than 100 million users, well above the 90 million expected by most analysts.
Its average daily page views surged to 465 million in December, up from 167 million in the year-ago period. Yahoo! said it would see a seasonal slowdown in the first quarter as advertisers curb spending. Revenue growth was 120 percent higher than a year ago and 30 percent higher than the third quarter.
"These extraordinary growth rates are unsustainable," CFO Gary Valenzuela said last quarter.
"For 2000, we expect to see the stock move sideways through the summer and then rally to a new high at the end of the year," said Merrill Lynch's Henry Blodget. "Yahoo!'s core businesses appear strong and the company is successfully expanding into new arenas (wireless, devices, international). We continue to consider YHOO a core long-term holding."
Last quarter, Yahoo! earned $57.5 million, or 19 cents a share, on sales of $201 million.
Analysts expect it to earn 59 cents a share in fiscal 2000.