Las Vegas Internet stocks hammered in market turmoil

Richard N. Velotta and David Strow

Monday, April 17, 2000 | 11:14 a.m.

The stock of PurchasePro.com Inc. of Las Vegas has dropped from $175 per share at the end of 1999 to $25 last week, including an 18 percent plunge on Friday alone.

Several other Las Vegas stocks were hurt by the market swings of recent days, but none as markedly as PurchasePro.

PurchasePro officials will discuss first-quarter earnings Wednesday after the market closes, but investors are likely to have recent memories of last week's big sell-off to temper any good news the company may announce.

PurchasePro stock fell $5.50 -- an 18 percent plunge -- on Friday to close at $25. A week earlier, the stock closed at $58.75. And, it wasn't that long ago -- Dec. 28 -- that PurchasePro was the darling of the market, trading at $175, its peak since going public last summer.

The issue was trading this morning at $31.69, up $6.69 -- 26.7 percent -- from Friday's close. It was unclear if there was a sustained rally in PurchasePro stock or whether the increase would be erased during volatile trading later.

Early last week, PurchasePro management was trumpeting the company's 122 percent customer growth in the first quarter of 2000 over the first quarter of 1999.

But some analysts are saying the business-to-business model offered by companies like PurchasePro will face the same shakeup as other dot-com companies.

Business Week reported last week that investors are in for a rough ride because companies with minimal assets have been valued so high and are due to return to more realistic levels.

Henry Blodget, an analyst with Merrill Lynch & Co., said he expected 75 percent of all Internet companies would be eliminated, either through consolidation or bankruptcy.

"It's a Darwinian change and entire species will disappear," Gary Rieschel, managing general partner at venture-capital firm Softbank Technology Ventures, told Business Week.

Late last month, Barron's ran a story questioning the long-term viability of companies like PurchasePro, saying they are burning cash at unsustainable rates. The stock price seesawed that week, with the value increasing after PurchasePro Chairman Charles Johnson Jr. announced that the company would beat analysts' estimates of 28-cent-a-share losses. It fell again after the Barron's article and continued its plunge last week.

Also predicting a shakeout in the business-to-business Internet sector is money manager Doug MacKay of Red Oak Technology.

"The B2B space will continue to be volatile. Commerce One, BroadVision, PurchasePro, Silknet -- there's probably going to be a shakeup there," he told Dow Jones News Service last week.

PurchasePro officials are telling investors they aren't at fault for the stock price's drop.

"It's buyers and sellers in the open market that are determining our stock price and not PurchasePro," said Tony Timmons, PurchasePro public and investor relations manager. "We don't comment on the volatility of our stock price because we can't comment on the activities of the buyers and sellers in the open market."

Another Las Vegas high-tech company also took a beating Friday, but two publicly traded utility companies that do business in Nevada and a Las Vegas-based health maintenance organization emerged with little damage. Gaming companies also weathered the storm relatively well.

Preference Technologies Inc., an Internet traffic-building company that changed its name from StockUp.com and its business focus from a financial information provider in February, saw its stock fall $1.75, 28 percent, to $4.50 on Friday. The issue, which trades over the counter, was at $7.87 a week earlier and was at $15.12, its 52-week high, on Feb. 28.

Sierra Health Services Inc., a Las Vegas-based health maintenance organization, was only off 1.4 percent Friday, down 6 cents to $4.38. The company survived last week's market doldrums, climbing from its 52-week low of $4.25 on April 7.

"We're just in a holding pattern due to a lot of the issues being discussed in Washington," said Peter O'Neill, Sierra Health's investor relations officer. "We're on hold until the Patients Bill of Rights issue is resolved."

Commenting on less-fortunate market sectors, O'Neill said that "while a rising tide raises all boats, people sometimes lose sight that a sinking tide takes all of them down."

Utility stocks fell about 3 percent on Friday. Sierra Pacific Resources Inc., the Reno-based parent company of Nevada Power Co., which has seen its stock price fall steadily since last summer when the companies merged, fell 37 cents to $13.69. Sierra Pacific, which is appealing the rejection of a rate increase by the Public Utilities Commission of Nevada, traded at its 52-week low of $12.12 March 28.

Las Vegas-based Southwest Gas Corp., the area's dominant natural gas utility, saw its stock fall 56 cents to $18.00 Friday. The company, which had its own merger deal with ONEOK of Tulsa, Okla., collapse early this year, traded at a 52-week low of $17.06 Feb. 23.

Mark Ruelle, senior vice president and chief financial officer of Sierra Pacific Resources, said he thinks the utilities sector, which was off nationally by just more than 3 percent, escaped Friday's carnage because investors are retreating to traditional companies.

"It was pretty simple, some of the new economy stocks are a little pricey," Ruelle said. "They're (investors) moving into the traditional bricks and mortar."

Ruelle also said that while point losses were high, the percentage decline of the Dow wasn't as great as the market crash in 1987.

"Everything is sort of magnified these days," Ruelle said. "Only one of the four broad indices is down for the year."

Ruelle also acknowledged that Sierra's stock may not have been hit as hard Friday because the stock already has lost much of its value in six months.

"People may feel there's less for us to fall," he said.

Several gaming stocks suffered during Friday's massive sell-off, though some rose too.

Worst hit was Park Place Entertainment Corp., which fell 94 cents to close at $10.88, an 8 percent drop. MGM Grand Inc. was nearly as hard hit, falling $2.25 to close at $27, a 7.7 percent drop. Gaming operator Boyd Gaming Corp. fell 25 cents, or 5.4 percent, to close to $4.38.

Though much of that drop was due to the marketwide sell-off, investors may also begin worrying about the "wealth effect," said Merrill Lynch gaming analyst David Anders.

When the market does well, investors are more apt to spend money on leisure, as evidenced by the rapid growth of the Las Vegas gaming industry during the bull market of the last few years. But that process can also work in reverse, Anders said.

"Large cap leisure companies, pretty much across the board, saw a pretty significant sell-off, regardless of whether they're casinos, hotels or cruise lines," Anders said. "There could be some concerns about the wealth effect. Should the wealth effect be negative, these companies would obviously be hurt."

Anders doesn't believe that's started to occur yet, however.

"Given how volatile the market has been over the last couple of months, I don't know if it's really sunk in that these are the true value levels for the broader markets," he said.

Slot makers Mikohn Gaming Corp. and Anchor Gaming were also hit, to a lesser extent. Mikohn fell 25 cents to close at $5.88, while Anchor plunged $2.06 to close at $35.81, down 5.5 percent.

Other stocks came through with far less damage. Mandalay Resort Group lost just 13 cents on the day, closing at $17. And Mirage Resorts Inc., currently awaiting a $21 tender offer by MGM Grand, fell only 1 percent, closing at $19.19. Giant slot maker International Game Technology, which received a ratings upgrade from Bear Stearns Friday, fell only 38 cents to close at $22, a 1.7 percent fall.

Two major gaming companies -- Harrah's Entertainment Inc. and Station Casinos Inc. -- conspicuously bucked the trend. Station rose 19 cents to close at $24.94, a 0.8 percent gain. And Harrah's, bolstered by the announcement of a 12.5 million share buyback, rose $1.50 to close at $19.69.

Harrah's 8.3 percent gain made it the sixth-best performer on the New York Stock Exchange Friday.

archive