A street.com rebuttal on the never ending Barrons bearish internet articles. I copied the best part of the article (commenting on the overuse of the word "bubble" below). You probably won't like this article because at the end they argue against the Barrons selection of values in the internet sector... (fmkt, etrade and earthlink). E-trade and FMKT probably are true values in the sector imo, but since this guy is arguing against the entire thrust of the Barrons piece, he calls these "slow growers" (in comparison to ebay). Probably true somewhat but I think we all know that e-trade and the internet software companies are victims of capex and stock market issues unlike the consumer sector.
Spare the Burial Rites for Internet Innovators
First, it accuses the Internet stocks, eBay (EBAY:Nasdaq - news - commentary - research - analysis), Yahoo! (YHOO:Nasdaq - news - commentary - research - analysis) and Amazon (AMZN:Nasdaq - news - commentary - research - analysis) in particular, of being in a bubble. Then it says what prices these stocks "ought" to be. Then it underlines all of its suggestions with a detailed breakdown of the options expenses on these guys. And finally, it illustrates the point further by pointing out some bargains.
Bubble? To call these stocks a "bubble" after the Nasdaq 100 has gone from 5000 to 1000 seems a little late to the game. In the past few months we've seen articles about gold bubbles, real estate bubbles, etc. Suddenly, a phenomenon that used to happen once every couple of decades (or centuries, depending on how you define "bubble") is now happening in every financial sector every couple of years.
A speculative bubble occurs when the only reason an asset is bought today is because it was up yesterday. There is zero fundamental basis for it. It can be argued that Amazon at $400 was in a bubble. More accurate would be to say we went through an IPO bubble, when IPOs would bounce several hundred percent simply because the last IPO did as well. To call eBay, which has gone from $2 million in earnings to $250 million in earnings in just five years, a bubble stock seems to be missing the point of what's been going on in this economy the past few years.
Some Facts: Internet e-commerce rose 50% in 2002 over 2001 and similar numbers are expected this year. Paid e-content (online subscriptions, for instance) rose 95%. eBay and Yahoo! were the biggest beneficiaries of these increases. And GDP growth was how much?
I really am getting tired of the word "bubble". A lot of things called bubbles today seem like average peaks and troughs from an economic cycle. We had a real estate "bubble" in California in 89, which did indeed bust, and now 12 years later prices are back to where they were and then some. I think that means it wasn't a bubble in historic terms, since a real bubble means prices never get to the peak again (or for hundreds of years). Since ebay is taking out its all time high, I guess that stock isn't a bubble. |
