Net shares running on empty

Net shares running on empty

Sitting on the sidelines ahead of the Fed meeting

SAN FRANCISCO (CBS.MW) — “We have sufficient cash in the bank to reach cash-flow positive.” Somehow those words just aren’t enough these days when sales forecasts keep sliding.

The tip of the iceberg seems to always be advertising, the first line item at risk in a downturn. On Monday, Prudential Securities lowered the price target on Yahoo (YHOO) to $10 from $20, citing further deterioration in the advertising market. Shares of Yahoo lost 4 percent to $8.48 in the early going, but managed to gain ground by the end of Monday’s session. Yahoo added 3 percent to $9.09. CNet (CNET) plunged 14 percent to $3.69.

At least Yahoo and CNet shares are trading at relatively respectable levels.

A sharp deceleration in ad revenue, coupled with a slow take-up rate in the number of broadband subscribers, may have accelerated the shortened lifespan of this once marquee name: ExciteAtHome.

Reassuring words from executives that there is “sufficient cash on hand” became especially familiar among the firms that were building out the Internet/telecom infrastructure. Yet as sales forecasts plummet, debt obligations have crippled companies’ ability to make their payments.

Just about one year ago, Exodus was cash-flow positive and it had $1.2 billion in cash. ExciteAtHome had $330 million in the bank at that time as well.

Late Friday, ExciteAtHome (ATHM) filed for bankruptcy protection. The broadband Internet access provider now plans to sell its broadband assets to AT&T for $307 million. It hired Houlihan Lokey Howard & Zukin, a specialist in financial restructuring, to help entertain other bidders. Shares of ExciteAtHome are halted, pending more information.

Now consider: Mpower Holding Corporation (MPWR), a competitive local exchange carrier. Just last week it said that it could “no longer affirm that its business plan is fully funded. However, with its cash balance of $277 million through the end of August, Mpower believes it has sufficient funding into early 2003.” Shares of Mpower sank 20 percent to 16 cents.

Overall Net sector

The Internet sector came under pressure yet again Monday, after closing out its fourth-biggest monthly decline this year and fifth consecutive declining month.

The Goldman Sachs Internet Index fell 3 percent while the Merrill Lynch Internet Index lost 2 percent.

In September, the Goldman Net index posted a 19-percent decline, registering a five-month losing streak during which the sector lost 48 percent of its value. The Net barometer’s September loss is the fourth-steepest monthly decline this year behind the 20 percent in August, 27 percent in March and 32 percent in February.

On Tuesday, Fed policymakers meet to decide on the direction of interest rates.

Looking ahead, the only imminent catalyst to move stocks is more pre-announcements.

As of Friday, there have been 166 negative pre-announcements for the third quarter, according Thomson Financial/First Call. To put this into perspective, there were 342 warnings in the second quarter. This could mean that more warnings are around the corner.

Of note…

Online ad-serving firm DoubleClick is in talks to buy rival Real Media, according to sources close to the company. DoubleClick (DCLK), valued at $730 million in market value and with $800 million in cash, could make an announcement as early as late Tuesday, this person said.

DoubleClick would not comment. Real Media was not available to comment. Shares of DoubleClick, which is expected to post third-quarter results Oct. 11, declined 5 percent to $5.40.

Yahoo is set to report its third-quarter results on Oct. 10. In July, Yahoo reported its second quarter and told analysts to expect the company to break even for the September quarter, down from the previous estimate of 1 cent a share. Yahoo will likely update analysts on its outlook for the final quarter of the year when it reports.

Amazon.com (AMZN) is expected to report in the week of Oct. 24. Amazon.com issued a positive pre-announcement on its second-quarter reporting date July 23. The e-tailer said that it would be at or slightly below a loss of 16 cents in the third quarter, narrower than the 20-cent loss initially estimated.

Goldman Sachs said that EBay (EBAY) CEO Meg Whitman has joined its Board.