Return of the Dot-Com Stocks

Already-troubled e-commerce stocks took their share of beatings when the market turned south last fall. Surprisingly, though, some of those dot-com issues have seen the most impressive rebounds in recent weeks.

The list of comeback kids is topped by Amazon, which has soared to new heights of respectability since it turned a profit in the fourth quarter of 2001. Travel booking sites also have bounced back despite the travel industry swoon that followed the September 11th terrorist attacks.

“The travel space has definitely shown a tremendous rebound since September 11th,” US Bancorp Piper Jaffray senior analyst Safa Rashtchy told the E-Commerce Times.

Travel Picks Up

Expedia has been the clear front-runner among travel sites, and Rashtchy said it also has outperformed stocks in many other sectors.

Morningstar e-commerce analyst David Kathman told the E-Commerce Times that Expedia’s stock is up 80 percent since the beginning of 2002.

“It’s really done well since January,” Kathman said, noting that Expedia started the year with a stock price of about US$30 but now hovers consistently in the $70 range.

The rising tide in online travel has even helped battered companies like Priceline, which Kathman said is “being unfairly punished” by the market in spite of the fact that it is becoming profitable.

While Priceline’s stock now hovers around $4 — a world away from its $162 peak in 1999 — the company has recovered well since last fall and is making headway in the areas of hotel room and rental car bookings, Kathman said.

Amazon Rebounds

Analysts said the most dramatic stock turnaround has been Amazon’s. The comeback began when the e-tail giant surprised the market with a profitable fourth quarter in 2001, and it has since posted a strong first quarter of 2002.

While Amazon stock is still nowhere near its highs of 1999, when it soared past $100, investors have rewarded the company in recent months. Its stock has risen from $6 in November and currently trades around $18.

Kathman noted that Amazon’s stock is up 66 percent so far in 2002, after posting declines of 80 percent in 2000 and 30 percent in 2001.

“Profitability is a major thing here,” Kathman said, adding that Amazon also has helped itself by moving beyond selling products to offer e-commerce Web site-building services to other retailers.

EBay Gets Stronger

Auction giant eBay also looks strong going forward, according to Kathman. The company’s stock price is down 18 percent so far in 2002, but Kathman noted that at about $55, it remains within the $50 to $70 range that it has maintained over the past year.

He said EBay continues to build on its lead in the auction market as more buyers and sellers flock to what is still the largest single marketplace of its kind.

“The company itself is great. They beat earnings estimates every quarter,” Kathman added.

Low-Profile Players

Among lower-profile companies, Kathman said he is impressed by the recent performance of GSI Commerce, which began life as an online sporting goods retailer but has since reshaped itself into a firm that helps other retailers build commerce sites.

GSI is now “on the cusp of profitability,” and has seen its stock price rise in the past year from about $5 to the $13 to $15 range.

Some flower-selling sites are also on the verge of profitability. For example, Kathman noted that 1-800-Flowers.com saw its stock climb 278 percent in 2001, and the company remains strong despite the fact that it is down 30 percent so far this year.

Looking ahead, US Bancorp’s Rashtchy said the e-commerce sector has plenty of room to grow in the coming months, and stocks in that sector could see growth of 20 to 25 percent over the next year, provided there are no other unforeseen shocks to the market.

Overall, analysts noted, the largest players in their respective e-commerce categories are the ones that have best weathered recent tough times, and the stocks of those companies are likely to see the most growth going forward.

Fewer Wild Swings

For e-commerce investors, this atmosphere is a far cry from the heady days of the late 1990s. But the good news is that the ride should be much less stomach-churning than the roller coaster of that period.

“The weakest players have been weeded out and have gone away,” said Morningstar’s Kathman. “It’s a healthier industry because this deadwood has been eliminated by Darwinian evolution.”

Because expectations have come down to Earth and hype has faded, another dot-com implosion is unlikely in the near term. However, investors need to be realistic about the upside.

“The companies that are left are not going to make you rich overnight,” Kathman said. “These are going to be ordinary companies trying to make a buck, and some are going to do better than others.”