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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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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The timing of this reset relative to the current stock prices is, again, not a prediction of future weakness. In fact we believe that many of the stronger stocks may be near seasonal bottoms.
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Near-term, in a market environment in which investors are fleeing to quality, its stock could continue to do well. Our analysis, however, suggests that the company's long-term earnings growth is likely to be slower than the 15 percent to 20 percent consensus.
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Since one of these possibilities would be negative for the stock (earnings miss), two would be neutral, positive, or negative (acquisition, management change), and one would probably be positive (takeout / strategic investment), it is hard to know what the impact on the stock might be.
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We would therefore remain cautious about adding new money to online advertising-driven stocks until the first or second quarter, when we should have better visibility. We continue to believe that the first quarter will be the toughest quarter, with only 10 percent year-over-year growth.
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Given what these stocks have done, the people who are left behind start looking for other opportunities.
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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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We continue to believe Yahoo! will make a good long-term investment. As a result of the challenging advertising environment, however, we believe the stock could see significant downside in the next three to six months.
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All these stocks work in waves. What goes up fast can easily go down fast. But the people who are putting money into K-Tel aren't looking for numbers, but they are playing a stock that is on fire.
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The good B2B stocks are dizzyingly expensive, but we would rather pay up for them than look for cheap stocks of poorer companies.
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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.