Hd– Cyberspace
Realities
The frenzied jockeying that’s taking place among companies seeking a major piece of the Internet puzzle is about to get even more crazed. It’s being played out in different ways and at different levels of the still-fledgling industry, from the massive portals that bring users into the Internet, to retailers looking to sell toys, books, clothes and other merchandise online.
In the end, bigger will prove to be better or at least the most successful. That was no doubt the idea behind America Online Inc.’s purchase of Netscape Communications Corp., and chances are it will lead to other large-scale acquisitions involving some of the Internet’s biggest names. Already, there’s talk of AOL becoming the predominant player in e-commerce whether through partnerships or outright acquisitions.
There’s no denying the potential. By 2003, just four years from now, Forrester Research projects that Internet commerce could reach $3.2 trillion. This holiday season alone, online retail sales could reach as high as $3.5 billion roughly the same as consumers spent on online commerce for all of 1997.
As an industry, of course, the Internet is very much a work in progress. Even now, none of the big media and computer companies has been able to figure out the winning formula for making online money whether through advertising, subscriptions or electronic sales. Actually, AOL is one of the few online companies that has managed to turn a profit thanks mostly to its huge membership base.
En route to the online industry’s messy maturation and it could be several years before that happens Wall Street investors will be desperately searching for the winning horses. How else can they explain the eye-popping valuations in recent weeks involving Internet companies like EarthWeb, theglobe.com, and locally, GeoCities?
The problem with such casino-style wagering is how much of it rubs off on Wall Street’s overall mindset. In the two years since Federal Reserve Chairman Alan Greenspan spoke of the financial markets’ “irrational exuberance,” the Dow has shot up by more than 2,000 points.
The summer’s dramatic sell-off, spurred on mostly by global financial worries and the over-leveraging of the Long-Term Capital hedge fund, was not nearly enough to put a damper on the bullish temperament. Even traders accustomed to quick turnarounds in the market’s mood must have been taken aback by the speed and velocity of the current rally.
Certainly, there’s plenty of cause for fundamental encouragement starting with the U.S. economy’s better-than-expected third-quarter performance. (That’s the quarter when all hell was supposed to break loose.) Now, it seems like a quaint memory: This week, consumers are launching their annual holiday shopping sprees and with consumer confidence back up, it promises to be a very good season for retailers.
None of this is a mirage or figment of investors’ speculative imagination. Times continue to be good and the prospects of a recession next year grow dimmer by the day. But scratch the surface a bit. There’s something unnerving about stock valuations that don’t mesh with financial results. The fact is, Wall Street’s hottest stocks are companies that not only don’t make any money, but in many cases have been losing their shirts. Amid all the hype, that’s a reality worth considering.
