Internet stocks are making a strong comeback with investors, with hopes raised that the next round of second-quarter results from the sector will be good.
Impressive gains in users and advertising revenue helped Internet bellwether Yahoo report stellar second-quarter profits last week. Analysts now predict that dramatic sales growth and improving bottom lines could spur fresh gains in many Net stocks.
Yahoo, the leading Net portal company, reported a second-quarter loss of $15.1 million (€14.82 million), but that was due largely to the cost of several acquisitions.
Without those expenses, the company would have earned $28.3 million, or 11 cents a share, surpassing the 8 cents expected by Wall Street. Sales also topped estimates by more than doubling to $115.2 million.
Yahoo stoked enthusiasm that Internet user growth will continue to expand as people spend more time at favourite Web sites. "What it demonstrates is the force behind the Internet continues to grow," said Mr Emeric McDonald, research director at money-management firm Amerindo Investment Advisors. "I'd expect to see strong results from a number of other leading companies."
Some analysts, however, cautioned investors against extrapolating too much from Yahoo's numbers. Not only is Yahoo profitable - still a rare feat among Net companies - but Yahoo appears to be gaining market share at the expense of rivals, they said.
Nevertheless, the consensus is that short-term growth is sufficiently vibrant for other Net companies to exceed analysts' earnings expectations.
Because many Internet start-ups still are unprofitable, Wall Street values them based on revenue growth and increasing page views, a gauge of the popularity of their sites. Investors are betting that the most popular sites will eventually generate strong revenue and earnings.
Going forward, however, companies where page-view growth outdistances revenue growth could be in trouble, said Mr Michael Murphy, editor of the California Technology Stock Letter. That would indicate that the companies can't bridge the gap between having a popular site and making money, he said.
Indeed, losses are expected to widen for some major Net firms, including book-seller Amazon.com. Some Wall Streeters are discouraged that the company has sacrificed immediate profitability in a quest for market share. -
