July 22, 1999

Mediocre First Half for Internet Stocks
by Yi-Hsin Chang (TMF Puck)

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What's Here

  • Introduction
  • AT&T & Broadband
  • Pharmaceutical Unrest
  • Online Financial Svcs.
  • Internet Stocks
  • InterNOT Stocks
  • See You Later, CEOs
  • Big Winners
  • Big Losers
  • Market Returns
  • Fool Portfolio Returns
  • The first half of 1999 was not a stellar one for Internet companies. Except for a few exceptions, over the last six months Internet stocks did not see the triple-digit percentage growth rates of recent years. In fact, some stocks even lost ground from the beginning of the year -- horrible by Internet standards.

    Internet Movers
    Priceline.com +622%
    Yahoo! +45%
    AOL +42%
    Onsale -53%
    Cyberian Outpost -64%
    Take industry bellwethers America Online (NYSE: AOL) and Yahoo! (Nasdaq: YHOO). AOL's shares gained 42% in the first half (on a split-adjusted basis) compared with 180% in the second half of last year and 132% in the first half of last year. Yahoo!'s shares rose 45% in the last six months versus growth of 179% and 127% in the preceding two six-month periods.

    Am I being too harsh here? After all, isn't 40%-plus growth still pretty darn good return over six months? Sure, if we're talking about a "real world" company, but this is the Internet. Whether we admit it or not, investors expect out-of-this-world growth from these companies that the market has given billion-dollar market caps but have yet to make any money.

    Online retailer Amazon.com (Nasdaq: AMZN) fared even worse than AOL and Yahoo! -- its shares were up just 17% from the start of the year as of June 30, despite having increased 181% and an astounding 231% in the previous two half-years. Another "disappointment," at least on a relative basis, was online auctioneer eBay (Nasdaq: EBAY), which added a mere 88% to its share price from January until June -- not bad until you look at the 409% gain it recorded over the preceding six months.

    Keep in mind that the Nasdaq Composite Index was up 22% during the first half, while the Dow Jones Industrial Average gained 20%. That means both indices outperformed Amazon. This is shocking but true. Amazon did come out ahead of the S&P 500, which rose 12% in the first six months. Incidentally, the Fool's Internet-heavy Rule Breaker Portfolio ended the half up some 29%.

    There are, of course, a few notable exceptions to the Internet slowdown. Internet investment firm CMGI (Nasdaq: CMGI) saw its shares soar 328% in the first half, a significant improvement from 41% in the second half of last year. Likewise, CNET's (Nasdaq: CNET) stock took off and gained 333%, reversing a 23% drop (and then some) in the last six months of 1998. broadcast.com (Nasdaq: BCST) saw its shares jump 249% in the first half of 1999, while DoubleClick (Nasdaq: DCLK) bounced up 312%

    Still, the first six months of the year disappointed many unFoolish investors looking to make a quick buck off of the typical frenzy over Internet stocks. Infoseek (Nasdaq: SEEK) was down 3% for the year as of June 30, and CDnow (Nasdaq: CDNW) slid 2%. Then you've got companies that saw their share prices cut in half or more: Onsale (Nasdaq: ONSL) lost 53% in the first half, while Cyberian Outpost (Nasdaq: COOL) dropped 64%.

    Even previously red hot Internet initial public offerings (IPOs) largely failed to make a big splash beyond their first few days of trading, if that. barnesandnoble.com (Nasdaq: BNBN) ended the first half at $18, the same as its initial offering price back in late May. TheStreet.com (Nasdaq: TSCM) was at $36 on June 30, substantially off the $71 1/4 high it had reached on its first day of trading.

    Similarly, autobytel.com (Nasdaq: ABTL) finished out the first half at $20 7/8, below its IPO price of $23 -- not to mention a high of $58 -- while rival autoweb.com (Nasdaq: AWEB) managed to come in at $14 15/16, just above its IPO price of $14 but significantly short of its high of $50. Meanwhile, fashionmall.com (Nasdaq: FASH) dipped to $7 3/16 from an IPO price of $13.

    To be sure, despite their volatility, most notable Internet companies are still outperforming the rest of the market, and year-to-date returns of 40% or more is hardly anything to sneeze at. Amazon is up 229% year-over-year as of June 30, so long-term shareholders shouldn't worry much about a 17% gain in the first six months of this year.

    However, at least one recent Internet IPO continues to defy gravity. Airfare bidding site Priceline.com (Nasdaq: PCLN) finished the first half at $115 9/16 -- 622% higher than its IPO price of $16 in late March. Ah, Internet mania lives, if only in a few crazy stocks.

    Related Links
    -- Talk About: AOL Yahoo! Amazon CMGI CNET broadcast.com DoubleClick Infoseek CDnow Onsale Cyberian Outpost barnesandnoble.com TheStreet.com autobytel.com autoweb.com Priceline.com
    -- Fools on Amazon.bomb -- 6/8/99
    -- The Internet Evolution -- 3/2/99
    -- Fool Interview With Jeff Bezos -- 1/25/99

    Next -- InterNOT Companies