After five weeks of buying shares at bargain-basement prices, market bulls and value investors took a breather last week, pushing our index down 9 percent—its first weekly decline this year. Especially hard hit were Internet consulting companies.
Businesses continue to reconsider their IT budgets amid the weak economy. "At the end of November, there were concerns about the economys strength and how consulting firms would transition from dot-coms to larger clients," says Mayank Tandon, analyst at Janney Montgomery Scott. "Then December was a very bad month for the economy, which affected stock prices of even high-growth firms like DiamondCluster International and Sapient. And January wasnt any better."
Weak Q4 earnings confirmed the trend. Even Cisco reported lower-than-expected earnings last week, missing its Wall Street consensus for the first time in six years. "Well probably have to wait until at least the third or fourth quarter of this year before IT spending picks up," says Tandon.
In the meantime, many consulting stocks are trading near their cash value. Among them are Agency.com, C-bridge Solutions, Lante and Viant, all of which were big losers in our index last week. C-bridge, for one, terminated an agreement to purchase BEKK, a Norwegian e-business professional-services firm. As a result, it expects to collect $500,000 less in revenues for the first quarter.
Meanwhile, Viant reported a net loss of $13.2 million for its most recent quarter. "This was another difficult quarter for Viant," says Bob Gett, president and CEO. "We are feeling the effects of an uncertain economic environment, which we believe is delaying clients plans to invest in projects."
Agency.com also is pessimistic. The Internet consulting firm announced that Q1 revenue is expected to be as much as 29 percent below Q4 revenue, due to uncertain near-term demand.
Dilution of share value was behind the sharp drop in Exodus stock price last week. The hosting company issued 13 million new shares of common stock at $18.50 per share and $500 million worth of convertible bonds to use for acquisitions and other means to expand its business.
Please note that Complete Business Solutions, which was included in our index, has changed its name to Covansys and its stock symbol to CVNS. Covansys stock rose slightly last week.