Dot-Coms Regain Their Luster
Web Design & Technology News, May 2, 2003

May 2, 2003

Internet companies such as eBay are posting impressive gains and wooing back investors
By Michael Liedtke, AP Business Writer

SAN FRANCISCO (AP) -- After years of ridicule and ruin, Internet stocks are seducing investors again.

The handsome stock market gains posted so far this year by eBay, Yahoo!, Amazon.com and other Internet companies have sparked a debate over whether the surge heralds a dot-com comeback or another investment bubble.

Optimists say Internet stocks are being embraced again because the once-forlorn sector is producing impressive sales growth in an otherwise lackluster economy.

Online auctioneer eBay, for instance, began this year with Q1 revenue of $476.5M--a 94 percent increase from last year. Excluding gains from acquisitions made during the last year, eBay's revenue still rose by 56 percent.

That kind of growth became even more impressive as a long list of brick-and-mortar businesses disclosed depressed Q1 revenues amid the anxieties leading up to the Iraq war.

"The Internet is the only part of the economy that's really working right now," said venture capitalist J. William Gurley of Benchmark Capital, which owns a stake in eBay.

Pessimists, though, say Internet companies still aren't growing fast enough to justify their premium prices. They even question the value of San Jose-based eBay, widely regarded as the Internet's biggest business success.

The renewed fascination with Internet stocks extends beyond eBay. Through April, Yahoo's stock had climbed by 51 percent for the year, raising its market value to $15B.

Some smaller Internet companies are faring even better. The stock of search engine provider Ask Jeeves Inc. more than tripled during the first four months of the year while the shares of online DVD rental service Netflix Inc. more than doubled.

Through April, the Dow Jones Internet index was up by 25 percent for the year. That compared to gains of 2 percent for the Dow Jones industrial average, 4 percent for the Standard & Poor's 500 and 10 percent for the tech-driven Nasdaq.

Despite the rally, most Internet stocks remain a long way from peaks they reached during 1999 and early 2000.

The recent rise of Internet stocks may seem stunning, given how badly investors got burned by the downfall of the past three years.

But many veterans of the high-tech industry have been predicting Internet businesses would flourish again. These expectations are largely based on what's happened in other industries driven by revolutionary breakthroughs.

Marc Andreessen, co-founder of Web browser pioneer Netscape Communications, draws a parallel to the mid-1980s, when a boom in personal computers began to fizzle.

Some market pundits declared an end to the PC's glory days. Those gloomy statements look silly now, given the dazzling successes of companies like Microsoft, Intel and Dell Computer that, in retrospect, were built on the rubble of an initial investment bubble.

"We are going through almost exactly the same curve with the Internet," Andreessen said.

For those who believe the Internet is in the early stages of an economic renaissance, it makes perfect sense to buy stock in the dot-com survivors.

"People are starting to realize that there are technologies and businesses enabled by the Internet that weren't possible before," said Marc Benioff, chief executive of Salesforce.com, a privately held company that may test Wall Street's appetite for dot-coms later this year.

The potential for a long run of growth makes it difficult to appraise the value of Internet companies, said David Kathman, a fund analyst for Morningstar.

"It's possible we could be looking back 10 years from now and saying, 'Oh God, eBay sure was cheap back then,' " Kathman said.