Fasten your seatbelts for bumpy ride on technology rollercoaster

By Aimee McClinchy

Thursday 20th April 2000

The rollercoaster ride for tech stocks is far from over.

Analysts say the market is still sorting out "vapourware" from the stocks with long-term prospects, with some kind of balance expected to emerge only after Easter.

Despite the Nasdaq rebounding on Monday and Tuesday to reverse its historic 9.7% losses on Friday, no one is brave enough to publicly say the sorting-out is over.

The Nasdaq is still 80% lower than it was last October and local stocks have not rebounded to the same extent.

Over a week ago, before local markets picked up on the worst week ever for the Nasdaq, Advantage's share price was at $5.10, falling to $3.20 on April 17, which some dubbed "Black Monday."

That day the NZSE40 tumbled 4.6% and DF Mainland's pure internet index fell 20%. Eforce lost the most, falling 39% to 20c.

IT Capital closed at 28c, Strathmore Group at 23c and pure-play internet stock Beauty Direct at 14c, all averaging a 30% loss.

Old economy stocks in the top-10 were also hit as the exchange recorded 130 falls.

Tuesday saw a muted 1.1% rise on the NZSE40, with most stocks rallying slightly.

Yesterday afternoon, Advantage was trading at $3.55, Eforce at 30c, Strathmore at 27c and IT Capital at 30c.

Beauty Direct, one of the only stocks not to rise, was at 13c.

Major technology investors have been putting a positive spin on events.

At least on paper, dot.com entrepreneur Eric Watson lost around $27 million just from his holdings in Advantage Group and Strathmore between April 10 and the end of April 17.

He has recouped most of his losses but insisted he did not keep count and was not worried.

"I'm in it for the long term. It's just the nature of the beast and it's very early days. I think we will see volatility over the next few months."

Mr Watson said he saw the current low prices as a great time to buy, saying he had been "selectively increasing" his stakes over the past few weeks. But he would not comment on whether he had made share purchases over the past two days.

IT Capital chief executive Jeff Dittus said he was also a buyer and, tongue-in-cheek, said he hoped prices would stay down for a while.

"We got chucked into the basket and penalised for being a technology company, even though we are global."

Strathmore chairman Phil Norman said he thought the shakedown was healthy, inevitable and overdue.

"It's made it difficult for companies that don't have strong fundamental prospects in the long term."

Advantage chairman Evan Christian said, "When the tide goes out we'll see who has got their togs on or not." He said some stocks had been relying "on the stupidity of their investors."

Analysts said there would be a "flight to quality."

Investors would start to return to traditional valuation methods and concentrate on cashflows and earnings instead of ideas, JB Were analyst John Cobb said.

The New Zealand market had not fallen as rapidly as the US' because margin trading contributed only 0.02% of funds. But the next few weeks would be choppy.

"Everybody is looking for the bottom but I don't think we've seen it yet," DF Mainland's research head Bruce McKay said.

"The bounce-back here has been disappointing," Arcus Investment Management's Simon Botherway said.

Advantage chief executive Greg Cross said upcoming IPOs would be hard hit.

"Just as the first entrepreneurial IPOs since 1987 came out, they are probably dead and buried for another 10 years."

The e-boys give their take on the week

ERIC WATSON
Lost an estimated $27 million on paper in the week to Monday but gained back $5.2 million by midday Wednesday. Says he's still buying

JEFF DITTUS
Blames emotion and overexcited television presenters for the US crash and his company IT Capital got taken along for the ride

EVAN CHRISTIAN
Upcoming IPOs should be put off or management "need their heads read"

PHIL NORMAN
The hype had to crash for the healthy tech companies to find their valuations and move forward

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