Fool Me Twice, Shame on Me
The Economist has been watching the ever-increasing valuations of interent-centric firms like Ebay and Google and asks these pertinent questions:
REMEMBER etoys.com? What about Webvan.com? Do Boxman.com or Boo.com ring any bells? Pets.com, perhaps? The casualties of the dotcom bust have long closed or changed hands since the heady days of the late 1990s turned to the crash of the new millennium. But of the internet firms that survived the demise of the “new business paradigm”, many are now enjoying soaring market values as investors regard online enterprises with renewed confidence. And new firms are coming to market too, amid no small amount of excitement: for instance, PartyGaming, a gambling website, is working on an initial public offering (IPO) that values the firm at about $10 billion. Is this a new fit of over-exuberance?
And while admitting that much has changed in the five years since the "last crash", the Economist's concerns are legitimate:
If the Economist is right and future growth for the aforementioned firms is coming at each other's expense rather than from an expanding pie, then yes, there is considerable cause to worry about the valuations.
google
valuations
ebusiness dotcom
Further Reading
http://veraperez.com/archives/1006/ http://www.bigshinything.com/?p=667
Despite the obvious dissimilarity between the performance of today’s online leaders and older, more mature firms, the rapidly improving financial performance of the dotcom survivors has persuaded investors to open their wallets. This has pushed the Dow Jones internet index up by 10% in the past two months. Google’s worth could top $100 billion sometime this year if the trend continues.
But investors with stakes in big internet companies, and Google in particular, might pause for thought. Although revenues and profits are rising steeply, valuations are rising disproportionately quickly—suggesting that another correction is likely at some point. Also, advertising revenues on the web—on which firms like Google rely heavily—are not growing as rapidly as online sales of goods and services. And although Google commands over half the worldwide market for online searches, its share is falling.
In response to such threats, the online giants are encroaching on each other’s territory. The leading auction site, eBay, recently bought shopping.com, a shopping comparison site, a service already offered by Yahoo! and Amazon. Google, Amazon and Yahoo! also host auctions, though they have some way to go before posing a serious challenge to eBay in this business. And while profits are growing fast, other new competitors may be tempted to join the fray—the barriers to entry in most online businesses remain low.
Undoubtedly, today’s big online ventures are on a surer footing than those that fell in the last dotcom crash. They are, unlike most of their erstwhile but now defunct peers, being run like proper companies. And there is a bigger pool of customers willing and eager to pay for their services. “Google” has even entered the language as a useful verb for describing a web search. For now it seems inconceivable that it, or a big competitor, might disappear. But there is little doubt that Google’s valuation looks suspiciously frothy. Do investors in internet stocks really need reminding that what shoots up can just as easily come crashing down?
If the Economist is right and future growth for the aforementioned firms is coming at each other's expense rather than from an expanding pie, then yes, there is considerable cause to worry about the valuations.
valuations
ebusiness dotcom
Further Reading
http://veraperez.com/archives/1006/ http://www.bigshinything.com/?p=667