My thesis on Web 3.0 is based on the verticalization of the web around specific Contexts. Here is a list of the top 12 Consumer Internet stocks, some of which, to varying degrees, understand how to create a business around a vertical context.
1. Google (GOOG)
Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is the synonym for online search. Its quarterly results defied the economic downturn and the company continues to grow beyond expectations. However, the company does not address verticals such as Jobs, Travel, Auto, Real Estate, Health and Personals. In fact, Google is not invincible, and the gap in Google’s defenses remains Vertical Search, Vertical Ad Networks, and Vertical Personalization.
2. Amazon (AMZN)
Amazon pioneered the concept of e-tailing with its online bookstore, which soon diversified into an online retail store selling CDs, DVDs, MP3s, computer software, video games, electronics, apparel, furniture, food, toys, and more. It has continued to innovate with products such as Kindle, which offers an iPod for books, and has the capability to change the face of publishing. Amazon is my favorite in this category, not least for the industry leadership that Jeff Bezos provides.
3. Priceline (PCLN)
Priceline is one online travel company that has been doing well for quite a while. At the peak of the dot-com era, the stock reached a high of $104, making many wonder whether it would scale those heights again. In fact, it has never looked back. In the last few quarters, Q4 ’07, Q1 '08, and Q2 '08, the stock has continued to soar. There is no denying that Priceline is executing well.
4. eBay (EBAY)
The Internet platform for global commerce, payments and communications, eBay might have started strong, but right now, it is absolutely stuck . I am not bullish on the stock. In fact, I am frustrated by the poor leadership that has destroyed a franchise as powerful as it is.
5. Yahoo! (YHOO)
What started as a hobby for a few Stanford graduates is now a strong brand. Yahoo! is one company that has taken the verticalization concept to heart and has entered many verticals, but without worrying about an overall strategy. It had a good offer from Microsoft (MSFT), but decided to let it go. This is another example of disastrous leadership destroying a franchise that perhaps, had the highest potential of all internet companies.
6. Expedia (EXPE)
The largest online travel company, Expedia has been troubled by the economic downturn. Expedia seems to have difficulties coping with the recession, but are trying to mitigate with acquisitions such as VirtualTourist, which are not so dependent on transaction revenue.
7. Orbitz (OWW)
Orbitz is the third-largest player in the online travel market. However, Orbitz has been troubled by the market conditions, and the growing strength of competitors Expedia and Priceline. I peg this as an acquisition for another media company trying to build a position in online travel.
8. Blue Nile (NILE)
Online diamond and fine jewelry retailer Blue Nile has always had my approval on its Web 3.0 strategy in terms of content and vertical search tools. What it lacks, however, is the personalization and community feature. I really like this company. If the company had figured out the up-sell issue, I would have given them a Buy rating. Its Q4 '07, Q1 '08 and Q2 '08 performances have been lackluster, primarily due to the economic downturn. As a company,
9. WebMD (WBMD)
Online health portal WebMD has been on my Buy list for quite a while due to its strong growth potential. Not only does the company have good content, but it is also capable of building a strong community between both its physician and consumer members. Its results for Q4 '07, Q1 '08, and Q2 '08 were representative of the company’s robustness.
10. Move (MOVE)
It should come as no surprise that online real estate hasn’t been having a good time due to the broader real estate market conditions. Originally known as Homestore, Move has ranked very well on my Web 3.0 parameters. I expect that Move would be acquired.
11. ZipRealty (ZIPR)
The other online real estate company that is also ripe as an acquisition candidate is ZipRealty. Like its peers, it is facing substantial macro challenges, but despite this, it is still worth watching.
12. Shutterfly (SFLY)
The last company I will mention is Shutterfly, also a likely acquisition. Online photo is a big category, and Shutterfly is the only pure-play that has a good monetization model. The recession is tough on them, as it is on several others, but I like the “personal publishing” business it has created, and believe that it would be a growth market.
Notice, I did not say that go out and buy all these stocks. These are simply the stocks to track, research, and develop an investment thesis around. In addition, in some cases, the thesis may be to Sell or Short. The billion-dollar question I will leave you with is - when do you short Google?