This is extremely important..<<"1) Expectations from the strong e-commerce season, though well warranted, we believe could now be largely built into the stocks; and 2) Investors are increasingly trying to stay one step ahead of the momentum trends.">>
Inflated monthly statements are one thing for claculating returns but the paper money that translates into liquid $'s is the best yard stick of performance, it is this money that provides the tinder for explosive returns when makret suffers a setback..Ike 26th Nov 1999 seeing DOT at these high-levels.. ggggg
Don't believe the Internet holi-hype
By R. Scott Raynovich
Redherring.com
November 25, 1999
There's growing evidence in the markets that the holiday hype -- "holi-hype" -- may be taking technology and Internet issues too far, too fast.
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The major indexes showed signs of a pause on Tuesday, when the Nasdaq Composite got a 49.69-point haircut. But the Nasdaq Composite roared back on Wednesday, rising 77.62 and putting to rest any thoughts that this spectacular fall rally might be over. The Nasdaq closed at 3,420 on the day before the Thanksgiving holiday, up 37 percent since August 10, when the current rally started.
Many have pointed to the fact that last Thanksgiving set off the enormous boom in technology and Internet issues -- based on the fact that the Thanksgiving holiday typically kicks off the holiday buying season. But after months of analysts drumming up the holi-hype, predicting that a goliath Net shopping season would power the economy into the next millennium (see "Beginning to look a lot like e-Christmas"), the message of unlimited upside has started to lose some of its luster. The fact that the Nasdaq Composite has risen from 2,490 to 3,420 in three months, which has fueled some unbelievably generous valuations in both the IPO and venture capital markets, leaves ample room for concern.
IS THE RALLY OVER?
The power of the current rally has led some of the Internet's most bullish analysts to reconsider their positions.
James Preissler, Internet analyst with Paine Webber (NYSE: PWJ), on Monday issued a report titled "Caution toward year-end." Under the subhead "Is the rally over?," Mr. Preissler gives several points that lead to cautious expectations, such as: "1) Expectations from the strong e-commerce season, though well warranted, we believe could now be largely built into the stocks; and 2) Investors are increasingly trying to stay one step ahead of the momentum trends."
Mr. Preissler continues, "The December quarter is very strong seasonally for advertising and commerce, followed by a slow March quarter as advertising budgets are finalized and consumers take a breather after heavy spending during the holidays."
In short, in a market that has gotten months (if not years) ahead of itself, you should be looking at what's happening next year, rather than simply looking at what's going to happen during the holiday buying season.
The current e-commerce climate should be scaring some new consumer dot-com companies that are spending all of their financing on television advertising for the holiday season. Yes, advertising, e-commerce, and holidays are important components of the Internet economy, but a lot has changed since last year, when the holiday mania took hold and fueled the rise of the current dot-com boom (see "Internet stocks in a holiday mood").
EARNINGS TOO?
First of all, e-tailing and Internet leaders such as Amazon.com (Nasdaq: AMZN) and Yahoo (Nasdaq: YHOO) were the first to build their brands, and they did so at a time when few other companies were spending a lot of money, so their brands emerged much stronger than the current crop of e-commerce wanna-bes.
In addition, the early e-commerce movers have had some extra time to work out technical and customer-service issues. The spectacular rise in their stocks has mellowed as their market capitalizations reach into the tens of billions of dollars. The advertising expenditures now being fueled by VC and IPO money have become less valuable in building a brand; with the sheer amount of dot-com advertising that has been hitting the airwaves, it's become difficult to distinguish much of anything in all the white noise.
From a stock perspective, there are dozens more Internet stocks to buy this year, and interest appears to have shifted from the Internet front-end (content and e-commerce portals) to the Internet back-end (software and hardware infrastructure). Internet investors are beginning to get a bit more selective, and they will soon start to look for Net earnings.
EYEBALL CONSOLIDATION
Perhaps the most frightening thing for the e-commerce upstarts, however, is the consolidation of power among the elite brokers of Internet eyeballs: America Online (NYSE: AOL), Yahoo, and Amazon.com.
It's going to become more and more difficult for the new crop of Internet companies, especially those focused on e-tailing and Web-based consumer services, to gain a foothold in the market. As the market expands, in fact, the early entrants appear stronger than ever before.
In a report issued earlier in the week on the Internet growth patterns, Henry Blodget, Merrill Lynch's (NYSE: MER) ever-optimistic Internet analyst, wrote that the safest long-term bets in the Internet are in the established leaders.
"We continue to recommend that investors place the majority of their Internet holdings in the strongest companies -- those that are gaining, or at least holding, market share in all of the key metrics, and those that have strong international operations (where the number of total Web users and the growth of all three value drivers [new users, new advertising dollars, and new e-commerce dollars] recently surpassed that in the United States)," wrote Mr. Blodget. "The companies that fit this description include AOL, Yahoo, Microsoft, and Amazon.com."
Indeed, the Media Metrix (Nasdaq: MMXI) numbers for October show that the leaders of the Internet are consolidating their positions. The No. 2 network, Yahoo, increased its user share to 63 percent, bringing it to within three points of AOL (at 66 percent). With all of the leading Internet companies -- AOL, Yahoo, Microsoft (Nasdaq: MSFT), and Amazon.com -- increasingly focusing their energies on commerce, where does that leave the new generation of dot-coms that are spending the lion's share of their marketing dollars on one holiday season?
"We were expecting to see a slightly heavier increase in Media Metrix's estimate of overall U.S. Web users, 488,000, from 63.4 million to 63.8 million," wrote Mr. Blodget of Media Metrix Web measurements for the month of October. Although Mr. Blodget is cautious to infer anything from one month's report, he concluded, "[W]e believe it may well be another sign of the flattening of the growth of Web users in the U.S. If so, it obviously has several implications for the Internet companies and stocks."
Mr. Blodget's three "value drivers" include new users, new advertising dollars, and new e-commerce dollars. As stated above, he sees domestic growth in these drivers beginning to flatten while international growth accelerates. These growth curves have become apparent to some of the major Web players, including Yahoo, which has noticeably shifted much of its expansion focus to International markets.
If you're a newcomer to the Web sales game, you might want to consider saving some of those holiday ad dollars for your marketing plans in Europe. |
