Can It Be? Is The Worst Over?

By eweek  |  Posted 2001-01-22

With little left to lose, investors aggressively bought Internet consulting stocks last week, boosting prices of many just before their Q4 earnings release. As a result, our index surged 18.3 percent, its largest weekly gain.

"Investors have to put their money somewhere, and theres a lot less downside risk in this sector now compared to others," says David Sturtz, analyst at CS First Boston. Many of the stocks in the e-solutions sector ended last year down 80 percent or more from their highs, leaving little room left to fall.

Among last weeks winners were Breakaway Solutions, which announced it had obtained financing from Internet Capital Group, an early investor that owns about one-third of the company. Details of the loan, which will include associated warrants, were not disclosed.

Investors also rewarded other companies for their initiatives targeted at a turnaround. IXL shares soared, after the company unveiled plans to sell stakes in six VC holdings for $50 to $100 million in cash. Newly appointed president and CEO Christopher Formant says iXL also will focus on building alliances with technology partners in order to deliver the services that Fortune 500 clients need.

Razorfish also rallied, after it announced a plan to repurchase up to five million shares of its outstanding stock.

Investors will get a better view on corporate initiatives and outlooks when companies release their Q4 earnings over the next few weeks.

Of this sector, Scient was the first to report, and the news was as bad as expected. Operating losses for the latest quarter were $12.7 million before restructuring charges and other items, or 13 cents per diluted share, on revenue of almost $80 million. But the current quarter looks even weaker. Scient expects a 38 percent fall in revenue, to around $50 million.

"Scient represents an extreme case of dot-com dependency and is paying the price," say analysts at CS First Boston, who expect stronger results from other e-consultancies.

"Q1, for most companies, will be flat compared with Q4," says Gary Dean of Robert W. Baird & Co. "But most earnings should improve after that." Like many analysts, Dean favors the higher-quality firms, such as Diamond Cluster, Inforte, Proxicom and Sapient, as well as Cysive, Braun and Interliant.

"Its time to buy the leading names in e-services," he concludes.

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