Just what is a barrier to entry in your opinion?
Do Coke or Nike have barriers to entry? Hey, anybody can make a shoe or some sugar water, right, and for a lot less than these guys charge? Its all about brand name, economies of scale and leveraging market power. This is precisely what AOL, AMZN and EBAY are setting out to do (not that these are necessarily my favorite stocks).
Will they all be successful? I don't know. But they've got a huge lead on everyone else. And as for profits, these companies are generating huge gross margins (much higher than most manufacturers and retailers in the real world) ... the question is, how much can they leverage SG&A in the future, and how much of their current SG&A spending is more like investment in brand equity?
When talking about valuation, one concept you can't underestimate here is potential return on invested capital. Just think, how long would it take and how much would it cost for Walmart to put itself in front of virtually every high-discretionary income consumer on the globe. The Internet is a BIG DEAL - its not a bucket full of tulips or a new way to discover new medications - it can and will impact a majority of all commercial activity on the globe.
If you're looking for an Internet bubble, you won't find in the market leaders IMO, look to second tier companies, i.e., Skymall, BookaMillion, and whoever else. The market leaders have excellent business models - they just need to execute to stay a few steps ahead.
Who do you think is undervalued, or are just you an eternal bear or short seller? |
