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Boom or new bubble? Internet stocks are red hot again
By Laurence Benhamou
AFP
NEW YORK
Petroleumworld.com 11 23 06
Frenzied acquisitions of young Internet firms at sky-high prices, investors ploughing millions into new Internet start-ups: Internet companies are red hot again, but this time it's more solid than the tech bubble of 2000, according to industry analysts.
The star of the Internet renaissance is Google, famously founded in a California garage in 1998 and taken public just two years ago, its stock price has multiplied in price six times and on Tuesday surpassed 500 dollars.
The Internet search group has grown fast to become the fifteenth biggest US listed company by stock market capitalization, overshadowing such corporate giants as IBM, Chevron or Intel.
Memories of 2000 have also been rekindled, as new Internet sites are bought for hundreds of millions of dollars.
For example, the YouTube video-sharing website, created by students, was bought by Google for 1.65 billion dollars last month.
The frenzy started last year when the Internet telephone group Skype was bought by the online auction behemoth eBay for 2.5 billion dollars, the social networking website MySpace was purchased by News Corp. for 580 million dollars, and the photo exchange site Flickr was snapped up by Yahoo.
Business investment is also rising again, with over 25 billion dollars being invested each year in new companies, marking the highest level since 2001, with some 20 percent invested in new Internet projects, according to the National Venture Capital Association and accountancy group PriceWaterhouseCoopers.
However, the unbridled enthusiasm of the late 1990s, when business investments soared to 100 billion dollars in 2000, has not quite returned.
The technology-heavy Nasdaq exchange shot past 5,000 points in 2000, but is currently hovering around 2,465.98 points.
"I don't think there is a bubble at all, it's a continued, long-term, growth," said Mark Heesen, president of the National Venture Capital Association.
Heesen said investors were "very bullish" on the sector, but that it is a different scenario to 2000.
"More consumers have computers, there are a lot more products and services to the ultimate consumers, it's much cheaper to create a company, you have new fundable business models, many companies don't need VCs (venture capitalists) today," he said.
"There is a lot of excitement, good companies to finance, it's wide open, as long as VCs remain rational and do not invest too much money," Heeson said.
Technological advances since 2000 have also made it simpler for budding Internet startups in recent years, particularly because of the wider availability of free software such as "open source" on the web.
The explosion in online advertising, which surpassed 17 billion dollars in the United States this year and is expected to double by 2010, has also made Internet companies more viable financially, compared to 2000.
Financiers are betting heavily on "web 2.0" consumer-generated websites which according to Venture One raised 455 million dollars in the first nine months of 2006, double the number of 2005.
One investment fund, Sequoia, hit the jackpot with its investment of 11 million dollars in YouTube, a "web 2.0" site, before its purchase by Google.
However, the fresh ideas, innovative new companies and large sums of money flying around does remind some industry players of the late 1990s all over again.
"This is scarily like 1998 in some ways," says David Card, a senior analyst with Jupiter Research.
Other industry veterans warn that some of the models currently in vogue will have to prove themselves over long-term.
"We're back kind of in Internet-bubble era in terms of people thinking: 'OK, traffic. We want traffic. We want traffic,'" Microsoft Chairman Bill Gates said recently.
"There are still some areas where it is unclear what's going to come out of that," the Microsoft founder added.
However, the world's largest software group has also come under pressure of late.
Aggressive moves by Google to put free software online have led Microsoft to offer software such as Live Office free online.
Microsoft is also fighting back with its own advertising-funded business model called AdCenter in a further bid to repel Google's rapid advances.
AFP 23 0826 GMT 11 06
Copyright© 2006 AFP. All Rights Reserved.
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