Henry Blodget
Henry Blodget
Henry Blodgetis an American businessman, investor, journalist, and author...
advertising consumer continue continues disposable drivers estimate growth income major market percent three total traffic
There continue to be three major growth drivers in the consumer sector: traffic, advertising, and commerce. Traffic growth in the U.S. continues to slow, as more than 50 percent of the total market is already online. More importantly, we estimate that more than 80 percent of disposable income is already online.
advertising believe bottom continue estimate growth market online until
We continue to believe in the long-term growth of online advertising. Near-term, however, we don't believe the market will bottom until the first quarter. We estimate only single-digit year-over-year market growth in the first quarter.
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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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Our estimate for fourth quarter product revenue is approximately $1 billion. To achieve our estimate, we believe Amazon has to book about $750 million in the eight week holiday season. Our back-of-the-envelope analysis of the Delight-O-Meter suggests it is off to a solid start.
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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 are simply exhausted by the endless postponement of financial gratification - and we think other investors are, too.
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With paid search, advertisers bid against each other for rank positioning on commercial search terms, paying each time a user 'clicks' on their result.
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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.
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We continue to view OXP as a 'nice-to-have,' not a 'must-have,' especially in a weak economy. We have therefore baked only modest impact from the launch into our estimates.
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Every hour that the average user spends online, AOL pays for it directly, yet the average user only pays a flat rate of $21.95 a month. So if usage continues to go up, AOL's cost continues to increase and this is something they've started to control over the last several quarters.
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As the shakeout continues, we continue to believe that the Internet spoils will go to the few, not the many. As one investor we respect put it, anytime a new industry emerges, many turtles hatch, few make it to the sea.
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We also believe that some analysts are projecting that the company will miss the low end of the guidance range in Q3 and withdraw its goal of operating profitability in Q4. As a result, if the company hits the mid-point of the guidance range and reaffirms Q4 operating profitability, we would expect the stock to go up.
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We also believe such controversy, if any, would come at a poor time for Microsoft, given that the company is awaiting the Appeals Court ruling on the existing antitrust trial. As a result, we believe it is possible that this could put a damper on the positive sentiment surrounding the stock.
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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.