Sector Overview: Internet Stocks

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

While Google (GOOG) continues to meet the market’s expectations in terms of quarterly results, it seems that its leaders are really not 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! (YHOO) has conceptualized verticalization better. During the year, it managed to blow off Microsoft’s(MSFT) attractive offer. The company is facing tremendous leadership challenges, which add to the existing economic woes.

Amazon (AMZN) 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 (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 a seeming inability to improve the user experience. It might have 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 (NILE) is another retailer, which got its strategy quite right but is still not able to build its up-sell or community features. The current 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 (EXPE), Orbitz (OWW) and Priceline – all of whom have been badly hit by the downturn.

Priceline (PCLN) 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 over until the market improves. 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. However, unlike its peers, the company is a lot less solid.

Online health has been dominated by WebMD (WBMD) 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 (MOVE) and ZipRealty (ZIPR) 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?

Disclosure: None

Comments

[redbaron:]

The eBay model is broken, and current management has made it worse. The stock has bounced up a little currently, and this should be used as an opportunity to sell. Again, short this stock if you don't own it, and sell it, if you do. The bottom is not yet in sight.

No company can succeed using a strategy like they have now implemented, treating their customers like they are now treating theirs.

2008 Dec 14 06:40 AM

[Patricia013:]

I agree with redbaron completely. Sellers have been saying Ebay is doomed all this year and their complaints only worsen. Now it has reached the point where ebay lost so many of its small sellers of unique, rare and exciting items that Ebay has now almost become a strip mall...and not a very good one. Why should I shop for imported, drop shipped junk on Ebay when I can simply visit my nearby Walmart or shop Walmart.com online??? Ebay makes no sense and they are not even a shadow of their nemesis - Amazon and never will be!!! So far this year my sales have gone into the dump on Ebay - I've moved to Bonanzle.com and no longer buy or sell on Ebay. This is becoming the norm as far as Ebay is concerned but they ignore this and keep on ushering in even more diamond sellers of dropshipped junk! They deserve the doom they will soon get!

2008 Dec 14 01:44 PM

[CLH:]

The only thing Im interested in is "is it time to buy?". You dont tell us so the article is worthless.

2008 Dec 14 02:18 PM

[User 321029:]

CLH - What good is someone telling you its time to buy? How will you know if they are right or wrong? Here's a newsflash - nobody knows the future!

2008 Dec 16 11:08 PM

[xz1:]

I have no idea what this article is about and I can get much detailed information from yahoo finance or any finance website. If I remember correctly, last time, the author was trying to spill nonsense into networking hardware sector a few month back, what is your specialty? what do you know and others dont. even this is financial blogs, we still want to see ethics. this one is really low.

2008 Dec 17 12:55 AM