Internet: the Mouse That Roared
Here's a real page-turner.
It's a mystery about companies like Amazon.com Inc. - not so much a "who dunnit" as a "how they dunnit."
This pesky little bookseller has yet to detect a profit and may not uncover one for a couple of years. Its sales are puny compared with the big chains such as Barnes & Noble.
Yet Amazon.com hit the bestseller list for investors this year, with a 42-percent jump in its stock price.
Amazon.com tells the story of a powerful new breed of companies that have burst onto the investment scene in the past year or two. They are companies that do business on, or in, the Internet. And most - from companies that sell products on the Web to those that make hardware for it - have given investors a rocket ride.
For Amazon.com - dubbed an "e-tailer" - , the Internet is its electronic storefront, where customers browse, click, and type their way through book stacks.
"Over the long haul there is tremendous opportunity in Internet stocks," says Lise Buyer, Internet analyst at Deutsche Morgan Grenfell in San Mateo, Calif.
The Internet "is a retailing play with obscene growth potential as people get more comfortable with buying things online," says Paul Cook, co-manager of the Munder NetNet Fund, a mutual fund that invests in Internet-related stocks.
So far this year, the Internet has landed big rewards for investors. Too big, say some stock analysts.
Internet stocks have swelled 30.5 percent, according to an index of Net-related stocks called the ISDEX. That gain, through March 17, overshadows an 11.4 percent rise by the Standard & Poor's 500 stock index.
Internet companies emerged this year as the most dazzling facet of this decade's most dazzling stock sector: technology.
Analysts say the stocks should help lead high-tech as it continues to disproportionately spur growth in jobs, the broad economy, and share prices.
Long term, Internet profits should explode along with traffic in cyberspace, according to equity analysts.
Wall Street investment house Morgan Stanley estimates Web visitors will swell sixfold by 2000 to 150 million. Forrester Research in Cambridge, Mass., says that by 2001, annual consumer spending on the Net will balloon from $1.5 billion to $17 billion.
Short term, though, the cyber-sea looks a bit choppy.
Few Internet companies show a profit. So trying to evaluate their stock can be as illusory as cyberspace itself.
"Many companies are badly disconnected from their underlying fundamentals," Ms. Buyer says.
Analysts justify over-the-moon prices by projecting big earnings several years ahead. But such forecasts often seem no more than gussied-up speculation. Many companies on a wild frontier like the Net pop or flop based on rapid changes in technology and consumer whims.
Investors can harness the volatility if they understand the quirks and excesses of the high-tech sector. They can also smooth the ride by diversifying through mutual funds or equities that spread the risks across many Internet companies.
Even so, Internet stocks have charted just one direction - up.
President Clinton spurred the advance late last month by endorsing a five-year moratorium on new taxes for products purchased in cyberspace.
Then came another boost, with reports of slow earnings from more traditional high-tech companies - Intel, Compaq, and Motorola - prompting many investors to "click here" on Internet-related companies, says Buyer.
And the trend toward personal computer prices lower than $1,000 should put computers in more homes and open more Web connections, say analysts.
But Internet stocks could still suffer some harsh downward tugs:
* Technology stocks could take a sharp fall during the next market sell-off.
* Limited phone-line capacity could slow Web access and consumer appeal.
* Plans to tax Web commerce are still afoot, and government could spin a regulatory web that tangles the Net.
"Government could very easily hamstring Internet trade and growth," says Henry Blodget, Internet analyst at CIBC Oppenheimer in New York.
Also, many consumers are leery, concerned about credit-card security and preferring to see goods before they buy, says Britt Beemer, chairman of America's Research Group in Charleston, S.C.
"Americans are still the most visual consumers in the world," he says. They still want to see, "touch and feel items before buying them."