internet stocks rise from ashes

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    Interesting article from today's "The West Australian" IT section. Note Marc Andreessen, co-founder of Netscape Communications', perspective expressed in the closing paragraphs:

    Internet Stocks Rise from Ashes


    AFTER years of ridicule and ruin, internet stocks are seducing investors again.

    The handsome stockmarket gains posted so far this year by eBay, Yahoo, and other internet companies have sparked a debate over whether the surge heralds a dotcom 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 lacklustre economy.

    Online auctioneer eBay, for instance, began this year with first-quarter revenue of $US476.5 million ($768 million) - a 94 per cent increase from last year.

    Excluding gains from acquisitions made during the last year, eBay's revenue still rose 56 per cent.

    At the end of April, eBay's shares stood at $US92.91 - a 37 per cent gain since the end of 2002. Investor enthusiasm has helped lift eBay's market value to $US29.8 billion as of April 30 - more than many far larger corporate giants, including Ford Motor Co and General Motors Corp.

    That kind of growth became even more impressive as a long list of brick-and mortar businesses disclosed depressed first-quarter 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 question the value of eBay, widely regarded as the internet's biggest business success.

    The renewed fascination with internet stocks extends beyond eBay. By the end of April, Yahoo's stock had climbed 51 per cent for the year, raising its market value to $US15 billion.

    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.

    The Dow Jones internet index is up 25 per cent for the year. That compared to gains of 2 per cent for the Dow Jones industrial average, 4 per cent for the Standard & Poor's 500 and 10 per cent 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 were burnt over 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 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," he 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 dotcom survivors.

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

    The potential for a long run of growth makes it difficult to appraise the value of internet companies.

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