The year 2000 earned its place along with 1929 as one of the most infamous years in Wall Street’s storied history. It was a 365-day adventure that serves as a landmark example of how fear and greed still drive the market, even in these enlightened times.
What happened this year can’t be overstated.
The Nasdaq composite, bloated by every conceivable dot-com company that conned its way public, shot up 25 percent in the first three months to finish above the 5,000-point threshold only to give away half its value in the next nine months.
Time and space don’t allow for a complete roll call of dot-coms and dot-com-dependent companies that have gone bankrupt or close to it in the past nine months. A year ago, these companies were the hot picks from leading Internet analysts.
Even the pillars of the tech sector were battered in this sell-off, leaving Intel (Nasdaq: INTC), Cisco Systems (Nasdaq: CSCO), Microsoft (Nasdaq: MSFT), Sun Microsystems (Nasdaq: SUNW) and so many others trading a levels no analyst could have predicted.
Some say investors were conned by analysts, the media and by the companies themselves.
The truth is people wanted to believe that every stock they bought, researched or not, would double or triple in the next year on hope alone. Fundamentals be damned. Everyone wanted to grab some of that free money they were giving away.
Layoffs, management upheaval and worthless stock options are the reality this year.
Even the “best” picks went sour
At this time last year, Internet analysts were asked to give some of their top picks for 2000. Rather than go through every single one— most of which failed miserably—let’s take a look at InfoSpace (Nasdaq: INSP) and Modem Media (Nasdaq: MMPT), two stocks that also failed miserably but might be worth looking at a year later.
InfoSpace was an analyst darling this time last year when it was trading at around $50 a share and was, according to the experts, destined for $120 a share or more.
Well, here it sits at under $9 a share after buying Go2Net for what at the time was an estimated $4 billion.
Last December, Merrill Lynch’s Henry Blodget started coverage of the stock with a “buy” recommendation and set a 12- to 18-month price target of $160 a share.
"We believe that up to $95 billion in market cap could be created by Internet pure plays in marketing and sales infrastructure," Blodget said back in December. "Infospace.com is the best-positioned player to benefit from the growth in Internet marketing and sales infrastructure with an addressable market opportunity of $100 billion by 2003."
Blodget no longer follows InfoSpace for Merrill Lynch but he had an explanation, kind of, for its collapse this year.
“The international wireless deals didn't materialize as the company had suggested they would, and with large exposure to the U.S. consumer market, it didn't seem that there was much upside to the numbers,” Blodget said.
Despite the miss on InfoSpace and others—most notably Amazon.com—Blodget remains somewhat optimistic for Internet stocks in 2001.
Rising from the ashes
“I still consider myself optimistic about the Internet over the long term, as well as the value it has created and will continue to create over the next decade or two,” he said. “This said, the speed and magnitude of the collapse did surprise me, as well as the extent to which the companies that I consider real got hammered along with the scrapple.”
One year ago, all nine analysts following InfoSpace rated it either a “buy” or “strong buy.”
Today, all 16 of the analysts following it maintain “buy” or “strong buy” recommendations, a testament to either the analysts’ wishful thinking or the fact that you can pick up the stock now for the price of a movie ticket.
Analysts are expecting a profit of 14 cents a share in fiscal 2001. It made $9.5 million, or 3 cents a share, on sales of $57.7 million in its latest quarter.
Then there’s Modem Media, you know, the company that used to have a title that sounded like a fancy name for a chicken potpie.
It too was a shining star among Internet wannabes, garnering “strong buy” ratings last year at $62 a share and a price-to-earnings ratio of 1,438.
This week, Robertson Stephens analyst Steven Birer maintained his “buy” recommendation on the stock even though the Internet marketing firm warned that its fourth-quarter numbers will fall dramatically short of analysts’ estimates.
”We believe Modem has many attractive features, one of which is its $10 million in average revenue per top ten client,” he said in a research note. “The company's focus on large clients has paid off as small client work has dissipated for Modem's competition.”
After racing up to a high of $56.94 in March, Modem Media has stumbled and bumbled and fumbled its way to a $4 a share.
Analysts expect it to earn 28 cents a share in fiscal 2001.
A year-ago, Tara Long, then an analyst at CE Unterberg Towbin, reiterated her “strong buy” recommendation on the stock and set a price target of $85 a share.
Needless to say, it never happened.
Both stocks epitomize the madness that ensued throughout 2000 as much as the companies and their investors would like to forget about it.
There’s a chance the Internet group, what remains of it, and these two stocks in particular could rebound in 2001.
Stranger things have happened.