Net expectations dampened

After the latest big dip, Internet stocks remain on less certain footing

As the dust settled from the latest stock market melee, the only thing about Internet stocks that seems certain is that what goes up rapidly usually comes down about the same way. April may have been the cruelest month in confirming a continuing pall in Web stock prices. The consensus among analysts last week was that the Internet sky may not have fallen on the Nasdaq, but the ceiling is certainly considerably lower.

"The Internet stocks have crashed before," said Arthur Newman, vice president of Schroders media group. "One of the things investors are going to be focused on is which of these companies are ideas and which companies have fundamental businesses out there."

And even as the markets stabilized last week, observers were expecting a significant shakeout. "There are two kinds of guys in this area. The guys who were real and the guys who were totally fluff," said Tom Wolzien, media analyst for Sanford Bernstein & Co. "The guys who were basically a wing and a business plan are toast."

Wolzien foresees a "great implosion of the little guys," with bigger Web fish swallowing them up. "AOL will become a vacuum here," said Wolzien. "And Disney could go buy this stuff if they wanted to."

The supposition is that more-established Web powers-the real guys-still will justify support in the market. America Online, tag team partner of Time Warner with more than 20 million paying customers, seems relatively secure. So does Excite@Home with its base of 1.1 million (and growing) cable modem customers and extensions tacked on to its existing distribution deals with AT & T, Cox Communications and Comcast.

The pendulum has swung wildly for both America Online and Excite @Home over the past year. AOL, trading in the 50s last week, had been as high as $95 per share. Excite @Home's range virtually defined the depth of the recent dip, dropping below $20 per share last week from a high of $99.

And Wolzien foresees current market fluctuations having a potential impact for Excite@Home. "My guess is that we're seeing the beginning of the end of their being part of AT & T. If the shares go down low enough, AT & T will buy them in," he said. "And maybe they shed [the portal portion] Excite."

Maybe, he suggests, Excite goes to AOL as part of a new relationship with AT & T. It's a scenario that suggests the kind of reconfigurations a free-floating marketplace could help to create.

The basic metrics of the market have changed with the shifting mood of increasingly wary investors, according to Rich MacDonald, media analyst for J.P. Morgan, who sees the boom about to be lowered on companies carrying questionable financial baggage.

"There's a whole lot of competition that's going to get wiped out," said MacDonald. "For the good guys, it's a mixed bag. The real quality companies are going to survive. They'll be distinguished from the ones that don't have the capital."

Leading the Internet's mushrooming multimedia league of laggards: CDNow. In its latest SEC filing, the troubled online music seller conceded it had six months' worth of finances to sustain it, based on $51 million in financing from Time Warner and Sony. Trading just above $3 last week, CDNow was widely considered a prime candidate for acquisition.

"It has very little hope for survival," opined independent media analyst Harold Vogel. "Its assets are going to be bought by somebody eventually."

The most immediate fallout from the falling Web market was the postponement of CMGI's proposed $280 million IPO for its AltaVista search engine. CMGI has no new time frame for the IPO, according to a company spokeswoman.

Another IPO on the bubble: MTVi, the spin-off of MTV's Internet assets, including SonicNet, and It is also being delayed, according to a source, but MTVi officials couldn't be reached for comment on its status.

Opinions were mixed on the outlook for existing spin-offs, most notably NBCi and Some analysts see the potential for NBC or Disney buying those issues back if the stock prices get pounded. But the fact that those media heavyweights are backing their play is probably enough to sustain them-at lower prices.

"The Go.coms and NBCis are not bad stories, but they're now going to be discounted more than they would be in the past," said Vogel. "It's very hard for a to compete against Yahoo and AOL."

Newman argues that is a "well-coordinated" Disney venture with strong content for which it holds exclusive rights: "Disney isn't going to turn around and license Millionaire to Yahoo."

And the potential remains for future, similar IPOs, such as the spin-off CBS has been contemplating of its Internet assets.

"In some cases, it will still make sense to go do these types of spin-offs and tracking stocks," said Schroders' Newman. "But you have to have real good reason, not just because the market's hot."


<p> <span class="small" id="d9e53-23-small">Stock</span> </p><p> <span class="small" id="d9e58-27-small">52-wk. High</span> </p><p> <span class="small" id="d9e63-31-small">52-wk. Low</span> </p><p> <span class="small" id="d9e68-35-small">Market cap (app.)</span> </p>




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