Internet/29″/mike1st/mark2nd
By SARA FISHER
Staff Reporter
Internet mania went out of all proportion last week.
Stock values of many Internet-related companies including several based in Los Angeles soared in the last few days of December as a growing number of individual investors jumped in to buy already-astoundingly priced shares.
“Thanks to the popularity of online brokerages, individual investors have ready access to stock,” said Nicole Vanderbilt, director of digital commerce for research company Jupiter Communications. “Sitting home after the holidays, a lot of them have the means and time to act on a whim. They’re the main force behind the most recent stock surge.”
Pasadena-based Ticketmaster Online-CitySearch catapulted from $31.80 to $80.50 in the days surrounding Christmas. Shares of Torrance-based Creative Computers Inc. surged from less than $20 to $63 and also experienced a huge paper gain as uBid Inc., 80 percent owned by Creative Computers, saw its stock shoot from $40 to $189 in mere days. Meanwhile, Pasadena-based EarthLink Network Inc. and Marina del Rey-based GeoCities experienced more modest increases, seeing their stocks rise only 25 percent and 35 percent, respectively.
In fact, the only investors that seem willing to sell these days are insiders at a number of Internet companies.
The upswing has been attributed, at least in part, to Wall Street’s customary strong finish at the end of the year, sometimes dubbed the “Santa Claus rally.” Contributing to the rally was an infusion of new money being invested by 401(k) programs.
But that hardly explains why Internet stocks have so substantially outpaced the market.
“This is a rally that has never really been experienced before, with a swing that has never been quite this dramatic before,” said David Levy, senior Internet analyst for ING Baring Furman Selz LLC. “People are starting to understand just how big a deal the Internet is. The market is responding.”
The education process clearly was helped along by the phenomenal growth not to mention media coverage of online shopping this holiday season.
Last week, company after company involved in online retailing announced record-level holiday sales. Then, Boston Consulting Group released a study showing that online revenue for the holiday grew by 230 percent over the year-earlier period and projected that e-commerce revenue would total more than $13 billion for 1998. The study made front-page news all over the country and is likely to have spurred the Internet rally.
“When you see Martha Stewart on the cover of Newsweek with a Santa hat and a (computer) mouse, you know that e-commerce has become a widespread reality,” said Vanderbilt “The fact that the general public and investors are now convinced of e-commerce’s worth is fueling this stock surge. And almost any company with e-commerce activity is benefiting.”
Strong holiday sales are expected to keep driving Internet stocks upward, because those sales translate into greater-than-anticipated fourth-quarter earnings. In the retail business, the fourth quarter is by far the most important and most anticipated of the year.
“We’re getting close to the time when all these companies will report strong quarters,” said Keith Benjamin, an analyst at BancAmerica Robertson Stephens. “That expectation alone is helping to sustain the Internet stocks’ rise.”
And online shopping appears to be lasting well beyond the holidays. Many people received personal computers as gifts and spent last week cruising the Net. As a result, Internet companies continued to report strong online retailing throughout last week.
Levy and other analysts predict the carryover will extend well into the first quarter of 1999.
But while analysts gush and private investors rush in to pay unheard-of prices for Internet stocks, a number of company insiders (senior officers and directors) have been cashing out some of their shares.
Among local Internet companies, EarthLink insiders have been the most active. Between June and December, they sold almost 3 million shares on the open market in 37 transactions, according to CDA/Investnet, a securities research firm in Ft. Lauderdale, Fla. Meanwhile, EarthLink insiders did not engage in a single open-market buy during the period. There are 28.5 million shares outstanding.
Company founder Sky Dayton has been an especially active seller since last summer, selling 298,731 shares on the open market at prices ranging from $45 to $49 a share. As of late last week, the stock was trading in the $59 range.
“My main conclusion is that insiders think that their stocks have reached their top valuation,” said CDA/Investnet research analyst Paul Elliott. “After almost a year of little (insider) selling, we’re suddenly seeing very heavy trading across the board for the Internet sector. Not only is that unusual, it means that the insiders appear to agree with each other that the stock market is topped out.”
But an EarthLink executive offered a different reason.
“Sky (Dayton) is simply diversifying his holdings for the first time since starting EarthLink,” said spokeswoman Kirsten Kappos. “The sales don’t reflect any belief about the stock value, just about not having all his eggs in one basket.”
Kappos pointed out that Dayton still owns 7 percent of the company’s shares, down from 9 percent before his recent selloff.
Meanwhile, GeoCities insiders have made 33 buys, either by exchange or on the open market, since its August offering. Over the same period, only a single sale was made, by Vice President John Rezner, who sold 500 shares on Aug. 14.
But GeoCities insiders, as is typical for insiders of newly public companies, are precluded from selling their stock during the first 180 days following the initial public offering. GeoCities went public on Aug. 11, meaning the 180-day period will not expire until February.
Executives at several other local Internet companies including GeoCities, Ticketmaster Online-CitySearch and Creative Computers could not be reached for comment last week.
