Heard on the Street
For Dot-Coms, New Names Are Good for a Pop
Study of Stock Prices Confirms
It's as Smart to Dump the Web
As It Once Was to Embrace It
18 December 2002The Wall Street Journal
(Copyright (c) 2002, Dow Jones & Company, Inc.)
EVERYONE KNEW THAT during the stock-market boom, one of the many ways
to make easy money was to "Webify" a company's name, adding "dot-com" or
some variation of "net" to the end. If you wanted a real jump, the
switch could be more drastic -- going from, say, Nerox Energy Corp. to
Since the Internet-stock bubble burst, those names have become the
butt of innumerable jokes, associated more with liquidation than stock
performance. So what do you do if you're Skreem.com? Simple, get a more
respectable name -- in this case, Waterford Sterling Corp.
A funny thing happened on the road to respectability. A study by a
group of finance professors shows that companies that shedded their
dot-com names saw their shares jump, as if investors were rewarding them
for mending their greedy ways.
"I think we are very firmly stating investors are irrational, and here
is one of their biases," says P. Raghavendra Rau, a professor of finance
at Purdue University and one of the study's authors.
Irrational is a polite way to explain why investors bid up the prices
of companies such as Judge Group Inc. and Voyager Group Inc. when they
dropped the names Judge.com and Save On Meds.net. Overall, the study
found, companies that dropped dot-com, or some other formerly hip
designation, saw their share prices rise 15.8% the day the news hit the
market and a total of 21.6% in the 30 days following the switch, though
the gains were often ephemeral.
The stocks strongly outperformed other Internet stocks. Not too
surprisingly, the switchers' shares had fallen nearly 20% on average in
the three months leading up to the name change, in line with other
Mr. Rau and his colleagues were uniquely qualified to carry out the
current research. Their study, "A Rose.com by Any Other Name," appeared
a year ago in the Journal of Finance and documented the pop that stocks
got during the boom years when they added dot-com to their names. In
doing the current study, Mr. Rau updated his previous work, adding more
recent switchers to his first sample of name changers. And by doing the
two studies, the researchers were also able to pinpoint the serial
name-changers, those companies that added and then deleted dot-com from
"We said if markets go down, what happens to those companies that
added dot-com?" Mr. Rau says. "If they were smart enough to do it in the
first place, they were surely smart enough to do it again." His hunch
was right -- the 30 companies that swapped twice surged 9.6% ahead of
their former dot-com brethren the day after the announcement and 38.5% a
month after they shed their Internet anchor.
To find these names, the researchers looked at all publicly traded
companies on the major exchanges, as well as the Over-the-Counter
Bulletin Board, between June 1998 and August 2001. They discovered 183
companies that added dot-com or some other Internet code word to their
names and 67 that dropped the moniker.
For the company formerly known as Attorneys.com Inc., the name change
couldn't have come at a better time. In June 2001, with its shares down
more than 75% from their 2000 peak, the Lake Helen, Fla., company
dropped the dot-com from its name and took up the more-respectable
Within days, the company's stock soared more than 40%, to about $16
from about $11. It wasn't the first time 1-800-Attorney's stock had
gotten a quick pop. A year earlier, when the company had changed its
name from Publishing Co. of North America Inc. to Attorneys.com, its
shares nearly doubled.
While the list of companies that have dropped the dot-com includes
some well-known names such as Ticketmaster (was Ticketmaster
Online-CitySearch), Neoforma Inc. (Neoforma.com) and J2 Global
Communications (JFAX.COM), the list opens a window into the netherword
of often-struggling penny stocks -- names such as EDT Learning (formerly
e-dentist.com Inc. and before that Pentegra Dental Group Inc.) and Xdogs
Inc. (formerly Xdogs.com Inc. and before that the Sled Dog Co.).
Consider the path taken by English Language Learning & Instruction
System, a Provo, Utah, company that sells language-training materials
and trades (though not very often) at 18 cents a share. The company,
which was closely held and known as CALI Inc., merged, as a way to go
public, with Politics.com in February 2001. Politics.com was a has-been
political-news Web site that had started life as Lone Oak Inc.
"The idea of going public was to be acquired by a larger publisher,
which we tried to do this summer, and we were not successful," says
Chief Executive David Rees. "So we kind of retrenched and are running
independently." The company, which calls itself ELLIS, dumped the
Politics.com name shortly after the merger, though Mr. Rees still gets
an occasional call from a confused investor holding Politics.com shares.
"Their stock converts into ELLIS, so I tell them about ELLIS, direct
them to the Web site," Mr. Rees says.
In many cases, the gains from the name change disappeared as the
companies continued to struggle with corporate strategy. That was the
case with A.D.A.M. Inc., an Atlanta health-care information provider
whose name stands for Animated Dissection of Anatomy for Medicine. The
15-year-old company embraced the Internet as a way to sell its products
to other Web sites, changing its name from A.D.A.M. Software Inc. to
adam.com in October 1999. Nearly two years later, with the stock down
80%, the dot-com was gone. It got a pop of 23% the week it reverted to
A.D.A.M. Inc. in July 2001. The company now trades at 40 cents a share.
"We've had to just kind of regroup," says Bob Cramer, A.D.A.M.'s
chairman, CEO and co-founder. "The market has not looked kindly on us
being a very small public company with a misunderstood mission, some of
that being driven by name changes. They say, `What is this company
anyway? They can't even get their name right.' "
The current study has five authors: Mr. Rau and fellow Purdue Prof.
Michael Cooper; their graduate student, Igor Osobov; and Profs. Ajay
Khorana from the University of Virginia and Ajay Patel from Wake Forest
University. It is titled "The Game of the Name: Valuation Effects of
Name Changes in a Market Downturn," and available at
Mr. Rau says some people have asked him for strategies to make money
from his research, but his favorite reaction came from a colleague who
recognized some of the names in the study. "One of them said, `I'm
pretty sure I invested in some of these.' "
Although they have fallen from the radar, more than 130 companies with
dot-com in their name still exist in the 9,154-company database
maintained by Multex.com Inc., itself a surviving dot-com. Of those
companies, just 26 trade for more than $1 a share.
Meanwhile, the ups and downs have continued at 1-800-Attorney, which
maintains a lawyer-referral service, publishes legal directories and has
a consulting unit. The company's shares are up more than 1,000% in the
past two months from a low of 30 cents, following the arrival of new
management, which has bought up 31% of the company's shares. One step
they are considering: a name change.
"It's something that we are definitely contemplating," says Dan Rubin,
the company's CEO and chairman for the past two months. He adds: "Now it
sounds like we're just an 800 number, but it's just a third of our
business lines and about 22% of our revenue."
Journal Link: Read the full text of the study of dot-com stocks, in
the Online Journal at WSJ.com/JournalLinks.