Instead of saying that the [internet stock] "sector
is correcting" would it be more accurate to say: one
by one, highly-valued internet stocks are approaching
saturation in their respective markets, and therefore
losing share value?
If you think about it, this trend is inevitable. There's
only so many people out there with Internet access, the
time to use it, and an interest in service XYZ. This
number of people will increase over time, but not
nearly as quickly as the growth rates of many Internet
companies. Therefore, the share price of many highly
successful Internet companies should be steep at first, but
then dip ever more sharply as the rapid growth phase ends.
Because of market psychology, that dip should be interrupted
by a few "bottom" fishing ralleys, as wishful wistful
thinking about "old times" influences buying decisions.
Eventually, share prices will adjust so that they are
consistent with the more modest growth expectations.
A couple years ago, there was an explosion on a 747-100 jet
flying over Long Island, NY. As the plane ascended towards
cruising altitude, the entire nose (pilot's section)
of the jet blew off and was detached from the body of
the aeroplane. Passengers in forward section of the body
stared in horror at the open air knowing that they were
doomed. Ironically, the headless body of that aeroplane
actually ascended another three THOUSAND feet before it lost
lift and took the big plunge.
The moral of the story is that momentum will get you
higher, but you need lift (earnings growth) to stay there.
--
For Ebay, here are reasons to predict a downturn
may occur after 7/28. They are:
1. The stock is likely to be bid up for the quarterly earnings
release at that time;
2. The earnings are likely to be less than expected, because
the auction count growth has been lower than expected (its
not on track for 50% quarterly growth rate), this will shock
and disappoint many investors;
3. As the stock approaches 1 year old, many investors who bought
at the IPO or shortly thereafter can now sell at the long-term
cap gains rate;
4. the "house money" psychology in which investors don't mind
risking "house money" only lasts so long; if you hold it long
enough, "house money" becomes "my money" and your behavior shifts
accordingly (e.g., you may not mind risking "house money", but
you don't want to risk "my money" as much);
5. there will be even more shares in the market as the result
of the secondary IPO (assuming it is concluded by then), thus
more potential sellers. Currently, many shareholders are
insiders, and insiders are often limited by law as to when
they can sell.
6. Some people may anticipate a late summer market dip and/or
"Y2K" dip between July and October. |
