Net stocks boost markets

Stocks such as Lycos, Netscape, and Amazon.com rise as the surging Internet sector leads the broader market higher.

4 min read
Internet stocks continued their dizzying ascent in trading today as investors once again took bullish announcements issued by individual companies as a sign that the industry as a whole remains hot.

Today's rally, only the latest among Net companies in recent months, was led by Egghead, which closed up more than 64 percent at 14.8125 following a reported growth in revenues and in the number of registered users visiting its online computer store. (See related story)

Inktomi, which makes products that speed up Web sites, closed up more than New Media vs. S&P 500 53 percent to a record high of 73.625 after two high-profile brokerage houses initiated coverage with strong recommendations. Meanwhile, search engine Lycos was the latest Net company to announce a stock split, sending the company up more than 25 percent to close at 99.5625.

These developments were enough to raise stocks throughout the industry. Other strong performers included Yahoo, which closed up more than 15 percent at 199.25; Amazon.com, up 12.5 percent at 139.5; CDNow, up more than 15 percent at 24.5; and Onsale, nearly 5 percent at 26.75.

Yahoo's market value now stands at $9.2 billion, approaching that of established industrial giants such as ALCOA and well exceeding that of media companies such as Knight-Ridder.

Yahoo plans to release its second-quarter results Wednesday, which will be closely watched by analysts and investors. Bob Walberg, an Internet analyst with Briefing.com in Chicago, told Reuters that with Yahoo's share price approaching $200, he thinks the company will announce a split of "at least" 3 for 1 and possibly 4 for 1.

Although he did not rule out a conventional 2-for-1 split, Walberg added if Yahoo stock is not split, "not only will I be surprised, the whole market will be surprised."

"I don't think there's ever been anything like this in any sector," said Volpe Brown Whelan analyst Andrea Williams. "The paper value creation by companies as young as these is astounding."

Williams added that a downturn is inevitable but saw no indications one would occur anytime soon. That view was shared by others, including Waldron analyst Lynn Trepp.

"The industry as a whole has plenty of companies that have yet to move upward in their stock price, so I think the bullish environment for Internet stocks will last quite a while," she said. Trepp added that a number of companies, including Internet retailer Shopping.com, online music vendor CDNow, and even Inktomi--which has shot up more than 256 percent since going public last month--have plenty of potential to go higher in trading.

Williams agreed that a number of lesser-known Internet stocks have not enjoyed the same meteoric rises experienced by the most visible ones. For example, while Yahoo has grown by more than 83 percent since June 1, online music company N2K has grown by less than 6 percent over the same period.

Although rumors that established media companies wanting to get into the online space have helped boost Internet directories' stock prices, the speculation has done less to raise the shares of those Net companies that deal strictly in the content or retail areas, Trepp said.

Meanwhile, the Dow Jones Industrial Average was up 66.51 points at 9,091.77, while the technology-laden Nasdaq composite rose 15.47 to 1,909.47, a gain of 0.82 percent that outstripped the gains in the Dow.

Both Goldman Sachs and Hambrecht & Quist initiated coverage of Inktomi today with positive recommendations. Hambrecht analyst Daniel Rimer noted that Inktomi's current valuation is 34 times larger than his 1998 revenue estimates and 16 times his estimates for 1998.

Still, he wrote in a report, "it is important to remember that Inktomi's business model directly scales with the use of the Web, a market we project will have 160 million users by the end of 2000."

Lycos's announced 2-for-1 stock split, payable to shareholders of record on August 14, is only the latest in a string of splits among Net companies. Internet service provider MindSpring, online retailers Amazon.com and K-Tel, and search engine Excite also have said they would undertake stock splits.

"What we're seeing is momentum buying continuing," said Peter Cardillo, director of research at Westfalia Investments.

Traders and analysts said a strong bond market helped stocks, which also got a lift from the dollar's renewed rise. Relative calm in Asia also boosted sentiment.

"There's really nothing on the horizon that looks too upsetting except for Asia," Cardillo added. "We get our Asian blows to confidence and then forget about it."

"I think everyone's posturing and getting set for the next round of earnings," said Jay Meagrow, a trader at McDonald & Company.

The dollar stood at 140 yen in New York, up from 139.40 late Thursday.

The 30-year Treasury bond rose 0.4375, or $4.38 on a $1,000 bond, lowering the yield, which moves in the opposite direction, to 5.58 percent from 5.60 percent Thursday. Markets were closed Friday for the Independence Day holiday.

The Standard & Poor's index of 500 stocks rose 5.52 to 1,151.94. The American Stock Exchange index added 2.18 to 724.10.

Reuters contributed to this report.