Wall Street took a pounding Tuesday as investors hurriedly sold off stocks following record-high advances for share prices. Internet stocks, which had led the way up in recent weeks, were similarly out in front for the trip back down.
Don't write off the Net just yet, though. A much-anticipated initial share offering by MarketWatch.com, expected Thursday, should suffice to make everyone forget all this ugly talk of bloated valuations.
The Dow Jones Industrial Average fell 145.21 points to close at 9474.68, and the S&P 500 was 24.34 lower at 1239.54. The Nasdaq Composite Index shed 63.59 to 2321, and the Wired Index was down 26.57 at 621.60.
Investors' nervousness stemmed in part from the Brazilian stock market taking a nose dive. It's something of a rude awakening for US traders that the economic brushfire down in Latin America is still burning.
But the biggest cause of worry is simply that share prices north of the border have risen too far too fast.
"Selling some stocks is to be expected at this point," said Jeff Goverman, research director at Pacific Crest Securities. "If you have stocks going up 100 percent in a day, that's the equivalent of a few years worth of performance. If you see that kind of performance, you're going to sell off shares and take some profits."
Internet stocks, which can chart a lifetime of performance in the span of a few days, took a spill pretty much across the board as traders fled for cover from those Godzilla-sized valuations. Yahoo (YHOO), which climbed more than US$71 on Monday, retreated $12.50 to $402 ahead of reporting its fourth-quarter earnings. Analysts were looking for profit of at least 16 cents a share.
Other portal players also got hammered. Lycos (LCOS), soon-to-be-parent of Wired News, plunged $27.63, or 21 percent, to $103.38, and Excite (XCIT) was down $8.63, or 10 percent, at $75.13. Infoseek (SEEK) lost ground as well, slipping $3.56 to $84.19, but the damage was limited by enthusiasm for the official launch of Go Network, Infoseek's joint venture with Disney.
Amazon.com (AMZN) slid $21.25, or 12 percent, to $163.38 even as CIBC Oppenheimer reiterated a "buy" rating for the company's stock. Oppenheimer analyst Henry Blodget is the same guy who sparked an earlier rally in the bookseller's shares with a once-unimaginable price target of $400. Looks like lightning isn't going to strike twice, at least not for the moment.
Broadcast.com (BCST), which blazed an inexplicable trail higher in the last week, tumbled $62.06, or 22 percent, to $223, and good old eBay (EBAY) was down $51, or 18 percent, at $240.50. At Home (ATHM) lost $21.88, or 18 percent, to $100 on reports that it will restate past financial results following a little get-together with the Securities and Exchange Commission.
"Is this the end of the Internet stocks?" Goverman asked. "No way. There are still some fundamentally great stocks out there."
For example, ETrade Group (EGRP), which gained $12.44, or 14 percent, to $100.94 on news that the online brokerage will help establish an electronic investment bank, dubbed EOffering. The bank would reduce costs for companies going public by selling shares through the Net, and aims to underwrite its first initial public offerings later this year.
Yahoo wasn't the only high-profile firm reporting earnings after the bell. Also opening its books was chipmaker Intel (INTC), expected to come through with quarterly profit of at least $1.06 a share. Still, Intel's stock was caught in the sell-off, shedding $4.19 to $135.56.
Both Yahoo and Intel were expected to announce stock splits with their earnings reports.
Sun Microsystems (SUNW) fell 63 cents to $93.38 even as it prepared to take the wraps off new hardware and software aimed at the booming telecom market. Sun hopes its powerful Netra 1800 server will allow for more stable voice and data networks.
Another casualty of the downtrend was MCI WorldCom (WCOM), which declined $2.50 to $72.50 despite landing a contract to provide phone services to federal government agencies. MCI estimated the prize to be worth a minimum of $750 million in revenue over four years.
In finance, BankAmerica (BAC) fell $3.06 to $66.88 after revealing that about 18,000 workers, or 10 percent of its global workforce, will get the ax over the next few years as a result of the merger between Bank of America and NationsBank. Sure seems like the unemployment office is growing a whole lot busier as a result of all these much-praised corporate marriages.
DaimlerChrysler (DCX) lost $1.75 to $103.88 despite growing speculation that the automaker is about to make a play for Japan's ailing Nissan Motor. Officials from both companies are making increasingly suggestive comments that a deal may be imminent.
Along with its Go Network, Disney (DIS) had additional reason to break out the milk and cookies. Team Mickey advanced $2.50 to $37.75 on news that Salomon Smith Barney upgraded the company's stock to "buy" from "hold," and that Goldman Sachs boosted its rating to "market outperform" from "market perform." Could it be that Disney's recent trek through the fiscal wilderness has come to an end?
Lastly, Cheesecake Factory (CAKE) sank $6.78, or 23 percent, to $22.13 after warning that its fourth-quarter earnings may come in around 15 cents a share, as opposed to the 21 cents anticipated by the Street. Cheesecake Factory is a restaurant chain, not a porn site.
