Web Stocks Connecting With Street

Follow the Money is a monthly look at investment trends in media and entertainment companies.



While the Dow Jones industrial average has eked out a slim 1.6% gain, with most of that coming Monday, and the Nasdaq has risen 3.5% since the first trading day in May — prompting some analysts to declare an end to the most recent stock market correction — the Goldman Sachs Internet Index has rocketed 12.3%.

Goldman's index, which has gone through changes as Internet firms have gone under, merged or lost clout, now consists of just nine companies, including Yahoo!

The giant portal helmed by Terry Semel has seen its shares soar 28.5% since the start of May, putting them up 44.2% on the year.

Yahoo! has seen solid earnings gains on various revenue initiatives. Among other things, it has multiple seven-figure deals for movie advertising, Jupiter Research analyst Juliana Deeks said. "They're the category leader in terms of bringing movie advertising budgets to the Web," she said.

Online retailer Amazon.com has risen a hefty 18.7% since the start of May, though shares are off 1.6% from where they opened the year, partly on valuation concerns.

"More and more analysts are saying it's just a retailer and its valuation is ridiculous," said Michael Shulman, director of research at ChangeWave Research.

That said, Shulman remains impressed with Amazon. His research shows that it is the preferred online retailer, followed by eBay. "They'll consistently meet estimates and guide higher," he predicted.

Online DVD rental firm Netflix Inc., which is not on Goldman's index, has been a winner since the start of May, up 26.3%, but Shulman suggests that surprises from the company going forward will probably be to the downside.

That's because a poll his firm conducted with its panel of early adopters suggests that the same percentage who use the service is equal to the percentage who have tried it and canceled. And those interested in subscribing are no more or no less interested in a competing service from Blockbuster.

RealNetworks has risen 9% in May and early June. SunTrust Robinson Humphrey analyst Christopher Rowen is bullish on the company's online gaming strategy and its forthcoming devices for sending music to stereos. He has a "buy" rating on the stock, with a 12-month target of $9. Shares closed Monday at $6.20.

Roxio Inc., parent of Napster, went 18.8% higher during May and so far this month, aided by an upgrade by Rowen from "reduce" to "neutral" because Napster's business is doubling quarter-over-quarter.

In other tech news, Roth Capital Partners has initiated coverage of Hollywood Media, parent of Hollywood.com and Broadway.com.

Although Hollywood Media's shares have fallen 13% during the past several weeks, Roth Capital is bullish on the company's online advertising, growing at 40% year-over-year, as well as Totally Hollywood TV, the firm's interactive cable TV channel offering movie showtimes and information on demand that recently announced its fourth cable system partner. The Wall Street firm also likes the MovieTickets.com business, of which Hollywood Media owns 26%.

Hollywood Media CEO Mitch Rubenstein said Broadway.com sells $1 million in tickets a week, while Hollywood.com boasts $500,000 in online ad revenue each month. Shares closed Monday at $3.25. Roth Capital's 12-month target is $5.

Finally, IPIX Corp. shares have been volatile the past few weeks, moving from $5.74 to $10.93, with a brief stop at $12.49. The company, formally known as Internet Pictures, has become a security play with its 360-degree camera technology. Driving shares recently was a mention of the company by Secretary of Homeland Security Tom Ridge, leading investors to believe that a government contract might be in store for the suddenly hot outfit.