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Internet stocks fall again

Internet stocks retreat for the second day in a row, but Yahoo soars in after-hours trading after reporting its earnings.

2 min read
Shares of Internet companies jumped in after-hours trading today after Yahoo solidly beat Wall Street estimates with its second-quarter earnings and announced a 2-for-1 stock split.

Stock trading in the Internet directory company were halted, but competitor Lycos traded at 82-1/2 up from 77-1/2, according to brokerage firm Instinet. Amazon.com traded on Instinet at 113, up from 107-1/8 at the close.

Yahoo shares soared once released from the Nasdaq halt in the after-hours market, trading at 202, up from 186-3/16 at the close.

Internet issues had retreated for the second day in a row hours before Yahoo--considered an Internet bellwether--was to report earnings for its second quarter.

The rundown was led by online bookseller Amazon.com, which finished the day down 12.28 percent at 107.125. Earlier in the day, NationsBanc Montgomery Securities analyst Steve Horen said he downgraded the stock to "hold" from "buy" because he believes Amazon's current price is too high.

Other Internet commerce firms also declined today, including music sellers CDNow, which was down 12.67 percent at 20.25 and N2K, which was down 5.88 percent at 21. Online computer and software retailer Egghead was off 1.61 percent at 15.25.

Search engine companies also slipped, with Excite dropping just over 5 percent to 91.375 and Infoseek, down 2.3 percent at 34.5.

Even Inktomi, which has soared more than 90 percent during the last week, retreated today. Shares in the company were down nearly 4 percent at 73.5.

Andrea Williams, an analyst at Volpe Brown Whelan, attributed most of the declines in Internet stocks to profit-taking, noting the strong run-up during the last two weeks. She added that Internet investors are particularly focused on Yahoo's earnings report, released at the close of the market today.

In the past, Yahoo's earnings reports, which come out earlier than those of most other Net companies, have triggered sharp run-ups in the sector. It was unclear, however, if today's report would have the same effect, given the recent rallies, Williams added.

"It's not clear how much of [Yahoo's] anticipated strong earnings have been incorporated into the stock prices" of Internet companies already, she explained. "These stocks recently have been trading more on psychological momentum, so it isn't clear whether the stock will rally again or in fact whether they'll sell off once investors are presented with clear fundamental data."

It also was unclear whether Yahoo's earnings will be enough to justify the company's current market capitalization, estimated to stand at about $9 billion--or about 40 times its estimated 1999 revenues.

"Whatever number above [the expected] 9 cents [per share] they might report, it won't be proof that Yahoo has earned the market cap they currently have," Williams said.

Reuters contributed to this report.