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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Ellen who wrote (71354)	11/14/1999 1:19:00 PM
From: el vez	Read Replies (1) \| Respond to of 120523

Thank You! <eom>

To: Ellen who wrote (71354)	11/14/1999 1:49:00 PM
From: kendall harmon	Respond to of 120523

How to value an Internet firm--Donald Ratajczak: <<In almost every audience I have addressed lately, I have been asked about the importance of the Internet and the valuation of the .com companies. Investors want to know whether these high valuations are justified or if this is another hype, like pet rocks and hula hoops, that have their day in the sun and then end up in flea markets. Of course, the significance of the Internet continues to evolve. Several studies have been launched guessing at its size and importance in the years ahead, but no one is certain yet how significant the Internet will become. We already know that the Net is used much more between businesses than between producers and final customers. For example, more than $300 billion in transactions already occur on the Internet between businesses. Cisco generates more than 80 percent of its revenue from Internet transactions. By contrast, retailing remains small, with the Net largely displacing the catalog. This holiday season, the Internet may account for $10 billion to $14 billion in total sales, less than 1 percent of all retail sales. However, the Internet provides some powerful economic incentives. Comparison shopping is easy. As a result, low-price providers can sharply increase their sales with a well-advertised and well-designed Web site. Furthermore, consumers with so much more price knowledge can make better deals even if they eventually go to stores for their wares (or auto dealer lots or whatever). Second, as long as producers are talking to consumers, they do not need to use third parties to generate volume sales. Wholesalers are being squeezed out, and commissions are being sidestepped by Internet activities. Third, producers can learn more about their consumers and respond more quickly to customer needs. Fourth, customers can create an electronic trail for their transactions and follow the progress of their orders. The impact upon organizing production and reducing inventory needs cannot be overstated. Just think of the implications for reduced warehouse space and lower finance requirements per dollar of sales. All the above indicates that the Net is a big deal and will dramatically change the way business is conducted. It may also change how goods are distributed (although one solution is to order on the Net and then pick up the goods at the local outlet). The most innovative forecasting methods suggest that business-to-business activity will reach $1.5 trillion by 2004, or about 15 percent of all economic activity. Retailing will grow more slowly but should approach $200 billion in 2004, or about 9 percent of all retail sales. Stores will not be obsolete, but a third of all growth in retail activity will be on the Internet. About half the growth in business transactions will be Net-driven. Actual costs of transactions probably will be driven down between 5 percent and 8 percent. In addition, lower handling costs for goods and reduced finance charges because of the reduced time between when goods are produced and distributed will lower costs another 3 percent to 5 percent. These are not huge changes, but they will put a serious dent in any inflationary pressures that otherwise might develop. Economists have been wondering why the current strong economic growth has not created more inflation. Certainly the development of the Internet is one of those technological innovations that help explain this pleasant outcome. All the above suggests that the Internet has substantial economic value. If my back-of-the-envelope calculations are close, we could save about a trillion dollars if current economic activity optimally used the Net. Which brings us to the valuation of the .com companies. Someone will benefit substantially from providing these economic gains. However, will the benefits accrue to the providers and their shareholders, or to the producers and their customers? Economists have methods of making reasoned guesses about who'll get the lion's share of the trillion-dollar pot. If companies can easily become a .com competitor, only normal returns will be left to shareholders. Under those circumstances, producers and customers will get the lion's share of the gains. Furthermore, customers will get a larger share if they demand inducements to use the Net's efficiencies. If airlines provide an extra 5 percent for Internet transactions because it saves them a commission plus processing costs of 8 percent, then the customer gets most of the efficiencies. Alternatively, if customers feel comfortable about the ease of filtering and finding information, such as at information-enhancing Web sets (or even AOL or Yahoo portals), then most of the gains will go to the site providers. My bet is that customers and producers will get most of the gains, although some analytical sites may also do well as they help consumers deal with information overload. This means that most of the .coms probably are overpriced. Nevertheless, it would be wrong to underestimate the economic significance of the Internet. I already have changed the amount of commercial construction needed per percent growth in economic activity in my models. I also have modified my pricing structure, leading to less inflation and lower interest rates than otherwise would prevail. The inventory per dollar of sales in the future probably will be a quarter of what is needed today. I am just scratching at the surface of the Internet's economic implications.>> accessatlanta.com