SAN FRANCISCO (01/26/2000) - Take a look at some of the big movers in the Internet sector today. Amazon.com closed up 13 percent. Drugstore.com closed up 20 percent. The first Internet IPO of the year, Neoforma, finished up an astounding 300 percent. And FreeMarkets.com ended up nearly 30 points.
From those numbers, you would think all's well in Internet Land. You'd be dead wrong.
In fact, that's not even half of the story - just a small fraction of it.
Internet stocks were pummeled along with the rest of the technology sector in a heavy bout of profit-taking. It's something that shouldn't be too surprising, with the Nasdaq setting all-time highs in all four sessions last week and rallying since about the time David slew Goliath.
The Nasdaq closed Monday down 139.92, or 3.29 percent, at 4096.08. The Dow continued last week's fall, losing 243.54 points, or 2.16 percent, to close at 11008.17. Losses were steep in a number of issues, though if you looked at the selling in a more broad perspective, many of the hardest hit were stocks that have helped carry the Nasdaq to its lofty levels. Network Solutions, one of the sector's top movers last week, closed down around 35 points at 236.69. I2 Technologies, also one of last week's best gainers after reporting earnings last week and announcing a stock split, closed down 24 points at 233.88.
Yahoo, which has been a disaster since reporting earnings earlier in the month, closed down another 27.63 points, or 8 percent, at 324.31. But remember, Yahoo more than doubled from when it was trading in the low 200s at the start of last December to a high of 500 a month later. It's made a lot of people a lot of money.
But traders said losses were orderly and did not suggest a prolonged slump in the sector. In fact, it is not uncommon for the Nasdaq to drop sharply in one session after a number of up days, then find its legs again after a session or two. While a long and sustained correction in the sector would not be surprising, today's losses do not suggest one is forthcoming. The market is still in the midst of earnings season and a few solid reports from some high-profile names could turn things around.
But the market may need to wait and hear what Federal Reserve Chairman Alan Greenspan has to say in speeches the next two days before getting overly aggressive.
As mentioned above, there were some success stories. Amazon closed up 8.06, or 13 percent, at 70.13. The company announced today that it had expanded its agreement with Drugstore and upped its stake in the company to 28 percent.
Drugstore will pay Amazon $105 million over three years for a tab on Amazon's Web site. The deal follows one announced by Amazon Friday that gives it a 5 percent stake in Greenlight.com, an online car-buying company. Amazon will receive $82.5 million over five years from Greenlight, and receive warrants to increase its stake in the company to as much as 30 percent over five years.
As a result of the deals, Goldman Sachs upped its rating on Amazon to trading buy from market outperform. Goldman indicated that income from those deals and the potential for other similar agreements could help the company break even by 2001, a year before Goldman analysts had previously anticipated.
Elsewhere, Neoforma, which uses the Internet to sell medical equipment and other medical items, soared in its debut. The business-to-business company was priced at 13, traded as high as 60.94, and closed up 39.38, or 303 percent, at 52.38. And b-to-b mania was all that you could say was behind gains in FreeMarkets. The stock closed up 12.5 percent a week before it is scheduled to report earnings. The market's infatuation with b-to-b plays, as well as hopes that the company will announce a split, are fueling the stock.