Delisting does not automatically put a public company out of business, but it makes it difficult to operate, observers noted. Companies that depend on investors' capital to fund operations could see the well run dry quickly.
"It's not necessarily the beginning of the end, but you have a big hill to climb -- bigger than you thought you had when you started," said Barrett Ladd, senior analyst at Gomez Advisors, Boston.
The list of online stocks trading under $1 on the Nasdaq includes names such as MotherNature.com and PlanetRx.com, while other sites such as Egreetings Network and Varsity Group hover just above the dollar mark.
Last month, Nasdaq delisted fax service eFax.com. E-commerce services site Beyond.com Corp. disclosed in a filing with the Securities & Exchange Commission that it received a June 14 letter from Nasdaq warning its stock would be delisted Sept. 14 unless it met Nasdaq minimums.
The Nasdaq National Market requires a company's stock to trade at $5 or more a share or for the company to maintain at least $4 million in net tangible assets to remain listed. As of June, Beyond didn't meet the asset test; its stock late last week traded around $1.
Nasdaq's Small Cap Market has lesser requirements, which include a $1 per share price.
Companies that fail to maintain the requirements are dropped from the electronic markets and trade on so-called pink sheets, lists of over-the-counter stocks.
Once a stock is delisted, it is not available in electronic trading systems and financial analysts stop covering the company, which makes it hard to raise capital, said Roger Krakoff, managing director at Veronis, Suhler & Associates.
Internet companies are adjusting marketing to reflect reduced circumstances. Ms. Ladd noted some have have cut back on TV spots in favor of direct marketing and other less expensive media.
A Veronis forecast also noted Internet companies are dedicating a larger part of marketing budgets to magazines since they allow effective targeting of their audience.
NO OPEN WALLET
Many online companies spent aggressively on advertising to establish a dominant position in their segment, assuming capital markets would be "an open wallet," said Greg Kyle, president-CEO of institutional investment researcher Pegasus Research International. Unless they find another source of capital, he said, they face being acquired or going out of business.
That can be an opportunity for bricks-and-mortar companies to pick up an online brand with strong name recognition and a ready-built site, observers noted. For example, MotherNature is reviewing buyout proposals and Mr. Kyle said drkoop is a strong brand that could make a good acquisition candidate.
Some struggling e-tailers have found partners eager to buy in. In June, Dutch grocery company Royal Ahold -- parent of several U.S. chains including Stop & Shop -- acquired a 51% stake in online grocer Peapod for $73 million; in July, German publisher Bertelsmann AG agreed to buy music e-tailer CDnow for $117 million.
Mr. Kyle said buyouts may not carry much of a premium over dot-coms' depressed prices.
The fittest dot-coms will find more sources of capital to go on, but the market contraction that began this spring will continue, Mr. Kyle warned.
"We're going to see a Darwinian process," Mr. Kyle said.