Internet shares suddenly appear to have become ?must haves? with investors despite the fact that many of the companies involved do not earn a penny, and are unlikely to for some time.
Amazon.com, for example, announced yet another loss this week, although admittedly smaller than expected. It?s shares soared nonetheless - something that would not be expected in regular business.
Since going public, Amazon.com, like most other Internet companies, has been haemorrhaging money as it pumps cash into expanding its customer base and infrastructure, while trying to strengthen its brand name.
Matt Page, an analyst for the Strategis Group in the US, says: "Everyone is trying to explain it and noone has come up with a theory yet. Anything to do with the Internet right now transcends what is expected in the traditional business model."
But everything Internet does seem to have the Midas touch right now. Amazon?s shares surged to a high of $139.75 from $129.5, after announcing it had made a loss of $17.8 million, even though its revenues were a staggering $259.9 million.
UK high street retailer, WH Smith, also saw its shares jump 14p to 516.5p when it said it was moving into ecommerce in a big way earlier this month, and the whisper of a plan that it was to set up as a free Internet service provider in a similar fashion to the Dixon Group with its Freeserve scheme sent its share price leaping.
"It really defies any financial logic. It is like nothing we have ever seen, the Internet is definitely setting a new paradigm," says Page.
As a result, some investment banks such as BancBoston Robertson Stephens are maintaining their buy rating on Amazon.com and have even raised their estimates based on the online bookstore?s brand strength and revenue growth potential. The bank has raised its 1999 earnings per share estimates to $0.93 from $0.62, and its 2000 estimates to $0.22 from $0.00.
Keith Benjamin, BancBoston?s managing director, and Lauren Cooks Levitan, senior retail analyst, say in a statement: "Our forecast for the company in 1999 is more, more, more - more spending, more people, more products. Amazon is expected to make substantial infrastructure investments in 1999 to prepare the company for continued, impressive growth."
Yahoo! is another big name player that has also been successful in attracting traffic, but brokers are predicting that it may earn around $0.75 this year and hit $0.92 in 2000 - a growth rate of 22 per cent, which may accelerate to 55 per cent over the next five years.
If possible stock slow downs are taken into account, this means Yahoo?s stock would run at about $200 - it is now hovering around the $250 plus mark. But analysts believe that $100 would be a more reasonable stock price, although this would shave about #19 billion off the firm?s market capitalisation. Unlike Amazon.com, however, Yahoo! - and AOL - are at least making money right now.
"It may seem crazy, but these guys are doing in five years what would take 30 years in a regular economy," says Page.
The big question on everyone?s lips, however, is, how likely is this fast inflating Internet share bubble to burst?
Page says: "It eventually has to take a hit because the revenues and losses of these companies are way out of whack. The bigger guys will probably be able to sustain it, but the smaller guys riding on their coat tails will be the ones that take the crack."
But analysts are not the only ones looking for signs that the market is about to pop pretty soon. Jeff Bezos, chief executive of Amazon.com, has attempted to put the brakes on his company?s puffed up stock price.
When he announced its fourth quarter loss, he said that those long term investors willing to ride the rollercoaster would win out in the end, but warned small investors to be wary of the firm?s inflated stock price at the moment. "Amazon.com, along with most Internet stocks, is extraordinarily volatile. Amazon.com shouldn't be but a small fraction of any individual investors portfolio," he said.
But there are also some market watchers who believe the Internet stock market is running on borrowed time and is gearing up to a spectacular explosion.
Barton Biggs, global strategist at investment bank, Morgan Stanley Dean Witter, says the City of London reckons that Internet stocks could be sitting in a 100 day share bubble.
Speaking in Tokyo, he likened the current Internet frenzy to the 99 day bubble in US biotechnology shares that occurred in 1991, when a meteoric 140 per cent rise in prices dramatically reversed itself in under six months. Biotechnology shares took another five years to recover.
Biggs also attests that many small investors are unsophisticated and have not adopted rigorous enough methods for valuing Internet stocks. "They are buying Internet stocks strictly on the basis of their personal experience on the Internet," he says.
Elsewhere, Schwab in the US - one of the original discount brokerages and now the largest online investment site -is trying to limit customers? exposure to high risk by restricting trading in Internet stocks. It is also running an awareness campaign on various other potential methods of trading to prevent users going gungho for the immediacy of the Internet.
However, noone would question the fact that there is an ecommerce boom right now. AOL, for example, says subscribers spent $1.2 billion using its service over the Christmas period - although to put this in perspective, a shopping mall would expect to make about the same.
So while the future definitely looks bright for Internet suppliers, the main thing to worry about is whether investors? patience will begin to wear thin. And if it does, the party is bound to go off with a bang.
Connexin drops out of Ofcom auction due to start next week
SwiftKey users now send two billion emoji every week
Recruitment plans are 'most ambitious ever', claims Openreach HR director Kevin Brady
Samsung's under-the-hood improvements separate the S9 from the pack when it comes to the display