Saturday, August 12, 2000

K-tel's fall proves lesson for e-commerce

By Lisa Singhania
The Associated Press

        NEW YORK — Just two years ago, a small music distributor known primarily for its late-night ads on TV became Wall Street's latest Internet wonder. Shares of K-tel International Inc. zoomed from $4 to $40 in one day on news that it was remaking itself as an online music vendor.

        The beat did not go on.

        This past week, the Minneapolis-based company said the Nasdaq stock market planned to delist it from national trading, effective Aug. 14, for failing to meet the market's minimum capital requirements. The stock ended late trading Friday at just under $1 a share.

        The loss of trading privileges was not a surprise; K-tel's financial problems have been continuing and well-known. It's also certainly not the first, or only, company to lose its spot on the exchange, and the company, which continues to sell music online, said this week it will appeal the decision.

        But its fate, along with a prominent analyst's com ments this past week, serve as more reminders of how much investor and market sentiment toward e-commerce have shifted in the last two years, and will continue to change.

        The week started off with Merrill Lynch's chief Inter net analyst Henry Blodget downgrading his ratings on 11 of the 29 stocks he follows, saying in a report that at a time when “capital is scarcer ... the tide is no longer rising fast enough to lift all the boats.”

        Mr. Blodget rose to fame in December 1998, when, as an analyst for the smaller firm CIBC Oppenheimer, he predicted shares of would reach $400 — a figure that seemed pie-in-the-sky — within a year. In just 14 trading days, Amazon hit its mark.

        Mr. Blodget said his most recent “resetting” of Internet stocks reflects volatility and the need for investors to be more selective. Gone is the euphoria that once surrounded Internet stocks — when investors laughed off companies' mounting losses.


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