Internet Investing Continued from page 1
they could not have done just a few years ago,” he says.
Fulfilling the Potential
Indeed, the sudden success of these companies is fullling the early p r o m i s e s o f t h e I n t e r n e t . “ W h a t w e ’ r seeing now is what fueled much of the optimism and ultimately much of the speculation in the 1990s,” says Robert Sharps, a large-cap growth manager. “And now there are compa- nies with sustainable business models and solid nancial characteristics. e
“The way businesses reach consumers and the way consumers reach each other is changing so quickly and the magnitude of the change is so different that whole business models are being turned over and new ones are being cre- ated. Change creates opportunity.”
Adds Mr. Eiswert: “The rate of change is on steroids. If you have a good idea or new product, you now have a very rapid rate of adoption around the globe.”
Mr. Sharps cites Blockbuster, a video store chain that went from large prots to bankruptcy in just three years as consumers shifted
to downloading videos. Borders, a bookstore chain, is exploring bank- ruptcy as consumers shift to down- loading e-books. “Three years ago there were no e-readers,” he notes, “and now Amazon.com is selling more e-books than paperbacks.”
Another indication of the pace of change, Mr. Sharps says, is that Apple is expected to derive 60% to 70% of its earnings this year from products that it had not even intro- duced before 2007—principally the iPhone and the iPad tablet computer.
The new media have already marked some impressive milestones:
In just seven years, Facebook has amassed more than 600 million users and was valued at $50 billion in a private nancing in January. It has surpassed Google as the most popular site on the Internet in terms of “time spent.”
Twitter, an online messaging service and microblogging company, has accumulated 175 million registered users in just four years.
Groupon is among the fastest- growing companies in Web history, according to Forbes.com.
The Rapid Rise of the Internet Global Number of Internet Users
Developed Countries 2,500 Developing Countries
The global number of Internet users has doubled since 2005. It is expected that the total number of Internet users last year passed the 2 billion mark, including 1.2 billion in developing countries. While 71% of the population in developed countries is online, only 21% of those in developing countries are online. With more than 420 million Internet users, China is the largest Internet market in the world.
Source: ITU World Telecommunication/ICT Indicators database.
Apple’s iPhone has sold roughly 100 million units in four years, and Google’s Android operat- ing system for mobile phones is activating users at a rate of 300,000 per day.
Apple has sold more than 15 million iPad tablets since their introduction in April 2010.
There are now some 350,000 software applications on the Apple App Store that can be accessed with an Apple product.
Internet Bubble 2.0?
With some of these companies expected to go public within the next year or two, there already are concerns about another potential Internet bubble.
“Not all of these companies are going to be winners,” cautions Anna Dopkin, co-director of T. Rowe Price’s North America equity research. “However, with extensive research and analysis, you can increase the likelihood of deter- mining which ones will be successful and which ones will likely fall short.”
Mr. Sharps adds: “We can’t say whether the valuations of these private companies are reasonable or not. Some may be overvalued based on the hype surrounding all this. But based on the strength of positioning of some of these
rms, there is a reasonable chance
that they can become much larger companies over time.”
Paul Greene, a T. Rowe Price media and Internet analyst, cautions that some companies “are getting a lot of venture capital funding and don’t have a lot to show yet. But some of these companies have real business models, are growing very fast, and their valuations don’t seem anywhere near what some compa- nies reached in the 1990s.”
To illustrate the point, he notes