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Sector Overview: Internet Stocks

Posted on Friday, Dec 12th 2008

Here is a quick glance at how the year was for some of my favorite Internet stocks.

While Google continues to meet the market’s expectations in terms of quarterly results, it seems that its leaders are not really that excited about Google anymore. Not only the CEO, but even the founders Larry Page and Sergey Brin are focusing on climate issues. In the year, Google reported 60% erosion in market value – one of the steepest drops for the company ever – and reached price levels it had last touched four years ago. While Google is one of the strongest Internet brands around, it still needs some work on building its verticals. Perhaps acquisitions in this area will begin in 2009.

Unlike Google, Yahoo! has conceptualized verticalization better. During the year, it managed to blow off Microsoft’s attractive offer. The company is facing tremendous leadership challenges, which add to the existing economic woes.

Amazon is one company that knows how to innovate and change not only the book industry,  but also your reading habits. Despite being strong, the stock has not been spared by the recent economic conditions, and is currently recovering from the two-year low it touched last month.

eBay revolutionized the retailing model in the internet world by moving to online auctions and creating an Internet platform for global commerce, payments and communications. eBay is, however, stuck right now with deteriorating market conditions and an seeming inability to improve the user experience. It might have been a good business model, but as a company, it is not one of my preferred stocks, even though it recently touched five-year lows and is still trading at relatively low price levels. 

Blue Nile is another retailer which got its strategy quite right but is still not able to build its up-sell or community features. Thecurrent market conditions are severely impacting business as buyers move away from high-priced luxury purchases.

The travel industry experienced a face-lift with the entry of some online travel giants in the last decade. The industry is dominated by three key players – Expedia, Orbitz and Priceline – all of whom have been badly hit by the downturn.

Priceline had soared to lifetime highs earlier this year, crossing even the dot-com era peaks. However, in recent quarters, the stock has crashed and is trading at $60 levels. It remains, however, fundamentally strong

Expedia also has not been spared by the market, either. The company responded to worsening conditions by quickly putting together a five-point strategy to improve marketing efficiency, conversion rates, supply, monetization and to reduce costs to help tide them tide over until the market improves times. The stock meanwhile hit lifetime lows earlier last month and is still trading at previously unimaginable levels.

Orbitz, the third-largest player, is plagued not only by the market conditions, but also by the growing dominance of its competitors. The company launched initiatives such as Price Assurance recently, but I wonder if these have come a bit late. As was the case for its peers, the stock hit its lifetime low recently. But unlike its peers, the company is a lot less solid.

Online health has been dominated by WebMD for quite awhile, and the company has always shown very good growth potential. In the recent quarter it continued to show substantial growth in the user base and site views. Given that WebMD operates in the health vertical, it is bound to be less affected by the market conditions. The stock’s reaching newer lows earlier this year had more to do with macroeconomic conditions than with the company’s business model

The industry that has been worst hit by the recession is real estate. Both offline and online realtors are facing tough times. Move and ZipRealty are battered. Both companies, however, remain very good acquisition targets at their current stock prices.

While most of the above stocks are strong in terms of business model, they are hurt by market conditions. And that begs the question: Is it time to buy?

This segment is a part in the series : Sector Overview

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