Sitting out earnings-warnings season

Sitting out earnings-warning season

NEW YORK (CBS.MW) — After a choppy week, Internet stocks endured their biggest setback Friday to finish lower for a second week as some investors kept to the sidelines during earnings-warnings season.

The Goldman Sachs Internet Index ($GIN)declined 2.5 percent Friday, and lost 1 percent for the week. Merrill Lynch Internet Holdrs nearly closed out the week higher, but Friday’s 3-percent drop sent the basket of big cap Internet stocks marginally into the red for the week.

The American Stock Exchange Internet Index dipped 2 percent on the day and the week.

“There continues to be ambiguity about economic growth and how that will hurt revenue and earnings, and certainly there are still issues about the health of online advertising and e-commerce,” said Brian Belski, a fundamental strategist at U.S. Bancorp.

Several technology downgrades also had a trickle-down effect. “Internet stocks have been poor performers this year,” Belski said. “And if the technology world in general has the potential of slowing in growth, the Internet sector will be under the microscope even more so.”

“There were downgrades for major high-tech stocks, like Intel,” said Malcom Fobes, portfolio manager of the Berxshire Focus Fund, which was recently ranked the number one large-cap growth fund by Lipper. “And every day, there seems to be someone warning about earnings. While there isn’t much related besides the feeling that there is a slowdown in business — it does add to negative sentiment across the board.”

Looking ahead

Still, Fobes is an optimist. “There is a lot of money put aside but will be put to work by mid-October,” he said. “I think the Nasdaq could run up 30 percent and hit 5,000 by year-end and the drivers will likely be a strengthening euro, falling oil prices, and increasing confidence that the Fed is out of the picture for the year.”

On Wednesday next week, investors will also get one of the first peeks at Internet advertising as online ad-serving company Engage Technologies (ENGA) is expected to release its quarterly results. Shares of Engage gave up 6 percent to $9.13 on Friday, and fell back 9 percent for the week.

Among the week’s winners was DoubleClick (DCLK).

Shares fell 3 percent to $38 Friday, but finished the week with a 13-percent return. The online ad-serving company held its analyst day earlier this week and outlined the company’s products. “We are even more confident that this is the strongest player in the e-marketing space,” said Perry Boyle, an analyst at Thomas Weisel Partners. “Fifty percent of the top online media sites and nine out of the top 10 ad agencies use DoubleClick,” he pointed out.

DoubleClick also has the “best product rollout track record,” he noted. The Engage Technologies (ENGA) subsidiary AdKnowledge was the first-to-market with an ad-serving technology product to media buyers in ’96 while DoubleClick introduced its product in ’99. Yet, DoubleClick is generating over three times the revenue.

Moreover, when interactive TV begins to gain traction, DoubleClick is in a dominant position and stands to benefit, Boyle predicts.

Speaking of interactive TV and the evolution of content over the Web, earlier this week Inktomi (INKT) announced that it’s buying FastForward Networks for $1.3 billion in stock to prepare for the onslaught of live video and audio content on the Internet.

Companies that can provide fast delivery of content over the Internet were among some of the companies discussed at George Gilder’s Telecosm conference in Lake Tahoe, Calif. this week.

Getting personal

Vignette (VIGN) lost $2, or 5 percent, to $36.50 on the day, but gained 11 percent for the week. The company is expected to report solid quarterly results, according to Stephen Sigmond, an analyst at Dain Rauscher Wessels. Sigmond reiterated his “strong buy” rating and a 12-month price target of $100 price target based on a 50 times ’01 multiple.

724/Solutions (SVNX) jumped 8 percent to $53.47 on the day, but surged 23 percent on the week. On Wednesday, the wireless infrastructure company said it’s buying Spyonit.com, a Chicago-based developer of notification alerts, for about $53.4 million in cash and stock. “We believe momentum is building in the notification market as technology becomes viable,” said Marianne Wolk, an analyst Robertson Stephens. This deal is similar to Pumatch’s MindIt solution which alerts EBay customers regarding auction sites, Wolk pointed out.

The Spyonit notification and alerts platform is a “sticky” service and has the “potential to reduce the churn for 724’s customers,” she said.

Next week’s agenda

VeriSign (VRSN) rose $4.88, or 3 percent, to $180.56 on the day, and finished the week 5 percent higher. VeriSign executives are among the high-tech leaders expected to present at the Banc of America Securities conference in San Francisco next week.

Ariba (ARBA) lost $5.13 to $152.44 on the day, but edged lower for the week. The e-commerce software provider is holding an analyst meeting along with its “user” conference in Miami on Monday. Analysts will likely focus on the company’s shift away from license revenue to transaction and exchange-based revenue.