Net stock selloff: Is the worst over?

Internet stocks staggered through another day of heavy losses Friday as Wall Street absorbed more troubling news from Russia. But at least one analyst says the economic unrest abroad will have little impact on Internet stocks.

Internet stocks staggered through another day of heavy losses Friday as Wall Street absorbed more troubling news from Russia. But at least one analyst says the economic unrest abroad will have little impact on Internet stocks.

Keith Benjamin, an Internet stock analyst at BancAmerica Robertson Stephens, said Russia's relatively small Internet population of 1 million users won't have any direct or indirect affect on the individual Internet stocks.

"Of course, it has served as a sharply negative stock catalyst in recent trading," Benjamin said in a report. "We view this week's sharp correction as somewhat cathartic and believe that investors will find value upon return from vacations over the next week or so."



Three chip and Internet analysts from NationsBanc Montgomery Securites explain Thursday's market slide.




After sustaining 5 percent to 10 percent declines Thursday, Yahoo! Inc. (Nasdaq:YHOO), America Online Inc. (NYSE:AOL) and Lycos Inc. (Nasdaq:LCOS) all took similar dips Friday.

Analysts said Internet companies are among the first to see sharp declines during a correction because they're relatively young, unproven and almost invariably overvalued.

"Internet (stocks) are-with few exceptions-risky investments," said Don Collier, an analyst at ProLytix Corp. "When you have a major correction like (Thursday), there's an strong urge to get away from stocks that have yet to prove themselves. It's a matter of reducing your exposure."

Netscape Communications Corp. (Nasdaq:NSCP) was off 5/8 to 23 5/16, Yahoo fell 5 3/8 to 85 11/16, Lycos lost 3 1/4 to 31, Excite Inc. (Nasdaq:XCIT) fell 3 9/16 to 30 7/8, Amazon.com Inc. (Nasdaq:AMZN) lost 8 5/8 to 110 3/8.

Despite the broader market sell-off, a handful of Internet stocks managed to make slight gains in Friday trading.

Zapata Corp. (NYSE:ZAP), which is marginally considered an Internet stock, picked up 1 1/2, or 14 percent, to 12 3/8.

CNet Inc. (Nasdaq:CNWK) shot up 1 3/4, or 4 percent, to 43 1/4 after Benjamin upped his rating on the stock from a "buy" to a "strong buy."

Benjamin assured investors that the Web and Internet stocks will grow despite the insanity in Russia

"We believe the Web stocks may prove more resilient and recover faster than the market averages, as investors look to sectors with strong growth prospects for the next two quarters, if not the next two years," he said in the report. "For reference, the Web stocks behaved well at the beginning of the year while the rest of technology was challenged by demand/price problems."

Looking back on the first six months of the year, it's clear the performance of Internet stocks doesn't mirror the rest of the technology sector.

In April, several Internet stocks grew by 60 percent or more in a three week span while the hardware, software and networking stocks were up and down. In fact, Internet stocks made their biggest gains when PC vendors and chipmakers were wrestling with Asia, plunging profit margins and overcapacity.

This bodes well for established Internet players such as AOL, Yahoo! and Amazon.com, but it's a far different story for Internet firms in their first month or two of trading.

Geocities (GCTY) fell another 16 percent Friday to 22 13/16 after peaking at 51 3/8 after its IPO. Cyberian Outpost Inc. (COOL) has met a similar fate, dropping another 13/16 to 10 > after losing 17 percent of its value Thursday.

"The market was asking the public investor to fund pre-IPO type companies," said Lawrence York, manager of the WWW Internet Fund.