Michael:
> Those #s are why everyone is currently flocking to YHOO and other
Internet-mania stocks.
I agree. Basically what I am trying to say is that the valuations people are placing on some of these companies in this market is purely based on their growth rate and anticipation of this growth rate continuing for years to come, and not neccessarily on what these companies can generate in revenue and earings today. Take yahoo again, you state in 2.5 years if they continue their current rate of growth they can generate a billion dollars in revenue annually. True, but by the same token if the market continues to value the stock the same way it has, the market cap of Yahoo in 2.5 years will be 50 billion dollars (i.e. assuming the current 50 million outstanding shares are not diluted the stock price of Yahoo will be at $1000/shr in 2.5 years based on 1 billion dollars in revenue and probably at best $140 million dollars in earnings which makes the P/E at around 333)!!
Does growth justify such high valuations?! Since I have become somewhat heavily invested in some of these internet stocks (although not ISPs or Yahoo type companies) I answer this myself (!), and say yes growth does justify such valuations!! In an economy where there is practically no inflation, and interest rates continue to go down or at least stay stable growth is good enough reason for such hefty valuations (at this time anyway)!!!
It is ironic and strange that in the new era of thin client/server centric architecture, companies such as Yahoo have come to enjoy the hefty valuations and growth rate manifested from this computing model, and yet the founders and those that invented the model (namely companies such as Sun, IBM, ORCL, etc.) are not enjoying the same attention and hefty valuations!
Regards,
Addi Jamshidi |
