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Net consulting companies hit as investors bail out

Shares of Viant bottom out with a new 52-week low in midday trading, a day after the company announced it would see revenues decline in the third quarter.

    Shares of Internet consulting company Viant bottomed out with a new 52-week low in midday trading today, a day after the company announced it would see revenues decline in the third quarter.

    The Viant warning capped see related story: Net consultancies feel shakeout heata miserable week for Internet consulting companies, as many investors bailed. Analysts have become pessimistic about many players in the Internet consulting sector, an increasingly competitive niche that appears ripe for massive consolidation.

    That's a stark contrast to this time last year, when many e-commerce consulting companies were soaring with unprecedented valuations and record price-to-earnings ratios.

    "There's been a violent shift in terms of demand," Credit Suisse First Boston (CSFB) analyst Barry Chubrik said of the Internet consulting sector.

    CSFB analyst David Sturtz added, "I think (the Viant warning) was worse than any of us thought," noting that he expects rival consulting companies to issue equally bleak news in upcoming weeks. "I think there's more bad news to come."

    Viant could see between 12 percent and 15 percent less revenue in the third quarter than the $38.5 million it generated in the second, the company reported yesterday. Viant anticipates a loss for the third quarter.

    In early trading, shares of Viant shed $5.28, or 38 percent, to $8.59. The stock bounced up slightly after hitting a 52-week low of $8.50. The company's 52-week high was $63.56.

    Eleven investment banks cut their ratings on Viant today. Viant CEO Bob Gett blamed the downturn on corporations that were spending less on consulting and Web design services.

    In a press release issued yesterday, Gett said that struggling e-commerce companies are unable to pay consulting and Web design service fees. He also said that brick-and-mortar corporations are slowing the pace of consulting expenditures as the perceived threat of dot-com rivals fades.

    Analysts say that the outlook for Internet consulting companies is bleak.

    "There will be considerable uncertainty clouding the Internet professional services group for a while," wrote Merrill Lynch analyst Stephen McClellan, who cut his rating on Viant to "neutral." "Viant is the first one to announce a material revenue and earnings shortfall, but we would not be surprised to see other similar situations."

    McClellan cut his third-quarter revenue estimates to $33 million with a loss of 8 cents from prior projections of $45 million with a profit of 9 cents a share.

    Legg Mason analysts cut their rating on Viant's stock to "market perform" from "buy." Lehman Brothers and SG Cowen downgraded Viant to a "neutral" rating from "buy." Bear Stearns lowered its rating on Viant's stock to "neutral" from "attractive," and Goldman Sachs brought Viant down from its recommended list to a "market outperform" rating.

    Heightened pessimism rippled through the sector today, capping a week of downgrades.

    Six analysts cut their ratings on Internet consulting company Scient today. Shares of Scient fell 18.7 percent to $22 in today's trading.

    "In response to the bomb dropped by Viant last night, we are cautiously reducing our rating on Scient shares to "outperform" from a "buy," wrote Lehman Brothers analyst Karl Keirstead.

    Other Internet consulting companies were affected by the news as well. Shares of Sapient dropped 14 percent to $45.13, and Organic shares fell 6 percent to $6.75.