I-consultants get whacked

Internet consultants get whacked

Viant, Sapient, Scient under pressure

NEW YORK (CBS.MW) — Fresh signs that corporate America and dot-com companies aren’t rushing to build Web businesses caused investors to flee shares of companies that had been big beneficiaries of the build-up.

The top three professional services firms including Viant (VIAN), Sapient (SAPE), and Scient (SCNT) led the selling within that sector. And the selling managed to dampen the mood across the board.

The 37-stock Goldman Sachs Internet Index opened higher, partly due to the fresh signs of benign inflation, but then fell into the red and stayed there. Even so, the Net barometer closed out the week with a 4 percent gain. It also closed out the month of August with an 18 percent return. By comparison, the Goldman Net Index fell 1.5 percent in August ’99 and subsequently generated an 11 percent return during the month of September.

The Amex Internet Index, which also started in the black, slipped 0.1 percent by the close of trading but ended the week with a 3 percent gain. Merrill Lynch Internet Holdrs fell 2.6 percent on the day and finished the week lower as well.

Where’s the e-biz?

Shares of Viant sank $5.69, or 41 percent, to $8.25. Shares are 87 percent below their high-water mark of $63 last December. In fact, anyone who purchased the stock at the IPO in mid-June of last year and held onto those shares would be disappointed.

Viant went public at a split-adjusted price of $8 a share.

Late Thursday, the e-consultant warned that it would miss third-quarter revenue and earnings projections by a significant margin due to lost business or delayed projects as many clients — dot-com or Global 2000 — expand their time horizon in integrating or implementing an e-business strategy.

The company said revenue could be as low as $32 million, about 15 percent below the $38.5 million in revenue generated in the previous quarter. This new estimate is 26 percent below the $44 million forecasted by Robertson Stephens analyst Stephen Birer.

Viant also said it would lose money compared to the 8-cents a share analysts had anticipated. Viant had “front-end loaded its hiring initiatives in July and August, which is adversely affecting the company’s profitability,” noted Birer.

Even so, Birer maintained his “buy” rating, partly due to his faith in Viant’s management to successfully steer the company back to profitability by the first quarter of 2001.

Other analysts were not so kind. Viant shed surprisingly “disturbing industry trends,” said Stephen McLellan, an analyst at Merrill Lynch, who downgraded his rating on the stock from “accumulate” to “neutral.” At Dain Rauscher Wessels, analyst Theresa Matacia lowered her rating to “buy” from “strong buy.”

In McLellan’s note to clients, he also warned that Viant’s announcement was not company-specific but perhaps an industry-wide trend.

“We are disturbed by various industry trends that Viant has identified,” he said. “Demand for e-business development projects may be moderating, contracts seem to be stretching out, users are more deliberate, larger traditional outsourcers and consulting firms are playing a larger competitive role.”

This may begin to hurt pricing, he warned. “This slow down in dot-com creation has taken the pressure off of the Global 2000’s rush to the Web.”

McLellan also lowered Scient’s rating(SCNT) from “buy” to “accumulate.” He took IXL Enterprises (IIXL) down from “buy” to “accumulate” as well. Shares of Scient fell $5.31, or 19 percent, to $22 while IXL Enterprises gave up $1.19, or 12 percent, to $8.38.

Sapient, (SAPE)the only e-consulting company included in the S&P 500, saw shares sink $7.75, or 15 percent, to $44.75.

Diamond Technology Partners (DTPI) and MarchFirst (MRCH) fell in sympathy with the group. Robertson Stephen’s Birer tried to put a plug on that selling by noting that both companies are “seeing robust business, and do not appear to be experiencing any material decline in demand.”

Proxicom (PXCM) tumbled $4.06, or 17 percent, to $20.13. Luminant (LUMT) and Razorfish (RAZF) fell five percent each.

Breakaway Solutions (BWAY), a hybrid application service provider and e-consultant, lost $1.88, or 13 percent, to $13.

Over the past year business has been strong, said McLellan. A company’s growth was “constrained” by staffing levels, now it’s a question of maintaining prices, he suggested, as he pointed out the obvious: “Times have changed.”

Buscar

On the upside was AskJeeves (ASKJ). Shares of the search engine rose 3 percent to $31.50 after it was announced that it’s linking up with Univision Communications, a Spanish-language television programmer, to create a Spanish-speaking version of Ask Jeeves.

Bucking the trend

Lifeminders.com (LFMN) gained $3.25, or 11 percent, to $33.25. Shares of E.piphany (EPNY) rose 4 to $108. Both companies are poised to benefit from near-term catalysts.

Liberate Technologies certainly didn’t buck Friday’s overall trend, but the enhanced TV infrastructure company was the week’s big winner. Shares of Liberate (LBRT) fell $1.63 to $29.13, but for the week the stock catapulted 56 percent. Liberate’s enhanced TV platform was chosen for BellSouth’s satellite e-TV services, which is expected to be launched next year.