Internet stocks got bruised Thursday as investors decided they were shocked -- shocked! -- to discover that Amazon.com is losing a lot of money.
Amazon's warning of a widening hole in its pocket fueled a general retreat from the dot-com club, which in turn kept hopes for a recovery in the broader tech sector on ice. Blue-chip shares, meanwhile, probed deeper into record territory.
The Dow Jones Industrial Average gained 32.93 points to close at 10878.38, finding confidence in a report from the US Labor Department that the employment-cost index, a measure of wages and benefits, increased just 0.4 percent in the first quarter, or about half as much as predicted. This suggests that mean Mr. Inflation remains away on holiday, and that the Fed likely won't fiddle with interest rates.
Too bad the Dow's optimism wasn't contagious. The Wired Index fell 8.85 to 649.25, and the Nasdaq Composite Index was 22.23 lower at 2528.14. The S&P 500 was down 8.05 at 1342.86.
Blame Amazon (AMZN) for spooking the herd. Although the largest online retailer reported a narrower-than-expected quarterly loss of 23 cents a share, and said its revenue more than tripled, the company's shares tumbled 13 percent to US$168.25 as CEO Jeff Bezos said the red ink will only grow deeper in coming quarters. New investments in services, staff, and promotions, he said, will mean even greater setbacks for the remainder of the year.
Well, there's a surprise. Amazon, which has seen its losses steadily mount since it first began peddling books in 1994, has made no secret of its commitment to securing market share at whatever cost, and Bezos has taken a sort of twisted pride in how much cash he's willing to throw at the company's ongoing expansion. "For the rest of 1999, we expect to invest more heavily than we have in the past," he declared late Wednesday.
So have investors finally had enough of this it's-only-money spending plan?
"This is just a knee-jerk reaction," answered George Koo, associate director of Burnham Securities. "A selling frenzy was to be expected after such an announcement."
Long-term, he still thinks Amazon's a winner. "It is all about market share," Koo said. "They're trading at a multiple of losses, but they're gaining market share." The fact that only one major brokerage downgraded Amazon's stock indicates that much of Wall Street feels the same.
In fact, Merrill Lynch raised its 1999 revenue projection for the company to $1.4 billion from $1.2 billion, but at the same time almost doubled its estimated per-share loss to $1.74. "We continue to believe that aggressive investment is the best plan for the long-term -- a plan that, if successful, will lead to industry-leading profitability, market share, and market capitalization," said analyst Henry Blodget.
If successful. And if not, well....
In other news about money-losing Internet companies, Mpath Interactive (MPTH), a developer of technology for online gaming, more than doubled to $50.63 on its first day of trading. The company debuted with 3.9 million shares initially priced at $18 each. Mpath lost $12 million last year, putting it well on track to follow Amazon down the road to cyber-success.
America Online (AOL) joined other Net outfits for the trip south, but attracted extra attention amid speculation that it's negotiating to purchase a stake in radio broadcaster Chancellor Media, and that it may join with cable operator Comcast to trump AT&T in the bidding war for MediaOne Group. Of course, people are always speculating that AOL is on the verge of some new deal, so who knows? The company's stock eased $1.94 to $141.06.
CMP Media (CMPX) jumped 13 percent to $38.44 on word that the publisher of Information Week and other magazines is being acquired by Britain's United News & Media for $920 million. United News said it will merge CMP's print and online assets with its Miller Freeman subsidiary, and will sell shares in an Internet unit by the end of the year. United News (UNEWY) was up $1.50 at $23.75.
Elsewhere in the media world, USA Networks (USAI) shed $2.06 to $39.25 even as it posted a narrower-than-expected quarterly loss of 2 cents a share -- a fine showing considering that a setback of 16 cents had been anticipated. The company credited its improved performance on higher ad revenue from its cable properties. Should be interesting to see how USA's bottom line looks once it expands its online holdings, including the still-pending purchase of Lycos (with its still-pending acquisition of Wired News).
In tech, chipmaker Actel (ACTL) plunged 30 percent to $13.31 after coming up a penny shy of estimates with first-quarter profit of 19 cents a share. Kaufman Brothers downgraded the company's shares to "hold" from "buy." Logitech International (LOGIY), meantime, advanced 63 cents to $14.75 as the leading maker of computer mouses saw its quarterly income surge sevenfold to $2.08 a share.
Another bummer of a day for some of the sector's top names. Dell Computer (DELL) fell 56 cents to $41.06, and Intel (INTC) was 38 cents lower at $60.81. Microsoft (MSFT) slid 6 cents to $82.06, and Cisco Systems (CSCO) was down $2.56 at $109.19.
MCI WorldCom (WCOM) declined $3.69 to $84 even as it announced that quarterly earnings almost quadrupled to 36 cents a share. CEO Bernard Ebbers said the company will tighten its focus on high-growth areas like voice and data services. But traders were peeved that he had nothing to say about MCI's rumored buyout of wireless carrier Nextel Communications, and took out their frustration on the company's stock.
Lastly, Anheuser-Busch (BUD) went flat despite topping estimates with first-quarter profit of 66 cents a share. The maker of Budweiser saw its stock drop $2.81 to $72.56 as investors figured that the company probably won't see another quarter with 20 percent earnings growth, so maybe it's time to kick back and call it a day.
In other words, Miller time.
