Hard Knocks for E-Commerce Stocks

Wall Street investment firm C.E. Unterberg Towbin decided last week to drop coverage of e-commerce stocks, claiming that the space wasn’t making anybody any money.

Some reports portrayed the move as a fitting way to end a year of very public struggles for the hearts and dollars of investors, which is a fittingly nonsensical way to look at the matter.

Unterberg made a business decision, but it’s one that the company will soon live to regret. I say let them go and cover broadband or chips or whatever else they think is the next big thing.

The fact is, houses like Unterberg helped fuel the silly run-up in price that led to the current climate that the firm is so courageously fleeing. Without their misjudgments and hype, e-commerce firms might well have been able to lay low and do in 2000 what they must in 2001: build a solid foundation based on reason and sound business principles.

Welcome to Reality

Somewhere between the March highs and the December lows exists the nook where e-commerce stocks really ought to reside. But heavy objects rarely stop without a skid, and many stocks have fallen further than they should have.

A few quarters of solid progress, however, and stocks should respond. Not by running up to who-knows-where again, but by taking their places at more sustainable and logical levels.

Of course, fear is a powerful motivator — possibly more powerful than greed. And being stung by steep losses, even those on paper, makes investors leery of reaching into the flower patch again.

But Unterberg’s move sends a different message, representing another significant error in judgment. It seems to suggest that e-commerce stocks can safely be ignored for a period of time, and then revisited when the coast is clear.

A Year in the Life

Okay, the argument can be made that there could be nothing more stultifying than watching closely as single-digit e-commerce stocks move up 5 percent, drop the same percentage or some other fraction, and then continue bouncing around a narrow range based on external forces or internal news blips.

But what’s the alternative? You can’t just check out for a year, because the company you return to may not be the same one you abandoned 12 long months ago.

Take eBay, which was in the news almost non-stop last week for a host of different reasons. The company launched a TV ad campaign, fought off an e-mail hoax, and endured a wave of criticism over its revised user policy, all in the dead space between Christmas and New Year’s. Those are the details that define a company in the long run.

Can’t Play Catch-Up

Little decisions only seem little at the time. But a misstep on a small thing — like a privacy policy or an investment — can be magnified later.

And the converse is true. By taking care of flare-ups as they come up, a well-run company can strengthen its defenses against a blow-up later on.

Ultimately, the investment houses that keep their research departments focused on the bellwether e-commerce companies will be ready to make informed decisions when those companies start acting like real grown-ups. Unterberg won’t.

What do you think? Let’s talk about it.

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Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.


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