Henry Blodget
Henry Blodget
Henry Blodgetis an American businessman, investor, journalist, and author...
advertising america appears approach believe benefit companies consumer continue fall improving internet leading sector sentiment stocks strong winter
The sentiment surrounding the leading companies in the consumer Internet sector appears to be improving as we approach the seasonally strong fall and winter period. We continue to believe that some of the leading consumer advertising and e-commerce stocks -- America Online, Yahoo, and Amazon.com -- will benefit from this.
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...This consolidation and shakeout in the space will continue for the next few months but longer-term will bode very well for industry leading companies like Amazon.
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In this market, you have two choices. Either you sit on the sidelines or you say you want to be in companies that you feel comfortable with.
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We think the Internet is tremendously profound. It will continue to have an effect on the global economy over the next five-to-10 years. But there's no way that it is a large enough opportunity to support the 400 companies that have gone public. And I think if you look back in history at different emerging industries, we've often had this feeling that the PCs for example are going to change the world. All you have to do is buy a PC company and you're safe. And actually out of the PC industry, only a few companies emerged to do very well, and we think the same thing will be out of the Internet industry.
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We contend AOL Time Warner is powerful enough that it won't go gently into the night (unlike Novell, WordPerfect, Lotus, Netscape, et al). We do believe, however, that developments between the two companies over the next year or two will have significant bearing on the long-term direction of the industry.
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We have received a number of calls on whether a combination of Yahoo and Disney would make sense. We believe an investment would be much more likely. Given that AOL-Time Warner is likely to be a real entity within a few weeks, creating a very strong global integrated media and Internet competitor, we believe other media companies will be looking to create similarly powerful internet strategies.
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We believe there could be a shakeout in the B2C (business-to-consumer) online retailing sector as companies that have had to spend aggressively to gain new customers will be running out of money.
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While the combined entity will have a large global footprint, we think cultural and managerial integration of the two companies could pose a challenge longer term.
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We continue to think there is long-term upside potential for the stocks of the leading companies in the Internet sector. Although we acknowledge the potential for appreciation over the intermediate term, we strongly believe that volatility remains a significant risk over this same timeframe and we would stress the long term.
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The majority of today's pure-play Internet companies will never make money and will not exist in three-to-five years. There will be a lot of consolidation and a lot of failure, and ultimately valuations will fall more in line with historical norms.
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The biggest challenge AOL faces is really controlling its usage-based cost structure.
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After that point, it is likely that the case could be appealed to the Supreme Court, which could add at least another six months to the outcome. So the case may not conclude until 2003.
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At the same time, however, we continue to be discouraged by one basic trend: a steady increase in our loss estimates without a correspondingly large increase in revenue or profitability estimates.
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We expect the challenging environment for online advertising to continue into the second quarter 2001, three-to-six months longer than we had originally expected. Because of this, we are not able to raise our bottom line estimates.