One of the main reasons people think Internet stocks have such high valuations is the method of valuing the stock. Interent stocks engage in very high reinvestment, therefore take most of their money to grow the company instead of producing the E in the PE ratio which would just get taxed by the government and sit in a money market fund. MSFT defers revenue, invests heavily in R&D, and marketing, so much of th emoney it makes (close to half) never makes to the net income to common line in the first place (which is the line that produces the E in PE). Therefore PE is a very inappropriate measure for hi-growth stocks who choose to grow the business over growing earnings. The added focus on the Net forces MSFT to put more in developer marketing and R&D, hence free IE to everyone that bests Communicator, redone visual basic 6.0 that allows VB programmers to write server applications, Visual studio 6, the biggest, baddest development environment around, SQL 7 after onely a year with SQL 6/6.5, Office 2000 totally compenentized and netcentric,
windows 2000, etc., etc.
Again see rcmfinancial.com and rcmfinancial.com
As you may be able to guess, I'm very bullish on MSFT. AOL too! After I'm finished with this piece on Sell side analysts, I'm going to turn the guns on this most recent quarter for MSFT and AOL/NSCP. |
