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Why are Internet stocks slowing?

Posted Jul 18 2008, 11:36 AM by Todd Harrison
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I spent the weekend with some of the smartest techies on the planet, guys and gals from all over the world: They drank the Kool-Aid a long time ago. By the time I got back to New York I was ready to get with it and stop living in the Stone Age (I still don’t even have a Facebook page). But if the Internet has so much growth potential and will eventually displace everything including television, then why are the stocks associated with the information highway system limping along at a snail’s pace or have curled up like armadillos? Internet stocks haven’t been world beaters for a long time and right now the Internet Holders is at a 52-week double bottom and vulnerable to the four year low of 44.  

After the bell Google posted earnings that missed the consensus estimate. I think the company’s goal of being aloof or standoffish with respect to Wall Street is really backfiring. The company has now missed the consensus estimate in three of the last five quarters. Posting $4.63 the company missed by a dime as research spending surged 65%. For some time the company has been chided for hiring too many people that essentially fiddle all day long.

This might be a great inducement to get eggheads to sign on the dotted line but when there are shareholders looking for results (a little different than great ideas in skull sessions) it might be smart to restrict indoor skateboarding and maybe lay down goals to actually produce stuff. Perhaps nothing did more to send the shares swooning in the after-market than comments from the CEO that this is a “challenging economic environment.”

But the Internet is blowing up... What gives and why do all the stocks in the space look so horrendous? According to Cisco, the growth of IP traffic will be nothing short of out-of-this-world.

Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Professor Charles Payne, see the full article here. See also:

Freaky Friday Potpourri: Anatomy of a Short-Squeeze

IBM: Downturn? What Downturn?

Keep On Trucking

Comments

 

never really answered the question

Big Al Gore has not invented the new internet!!!

None of the internet sites target the consumer market. There are sites that duplicate each and everything like social networking, social bookmarking, auctioning, selling, news, portals, etc. But none of them are really targeting consumer market and consumer always is struggling to look for the one that really gets value for their internet presence. Search Engines, you have to scroll all the way to get the real stuff you are looking for majority of the time, this includes Google. News Portals, they are biased majority of the time. Gadget info sites, they duplicate the same content over and over. Auctioning sites, take eBay, you really don't see any value to it anymore. Portals, Yahoo, iGoogle, Windows Live/MSN. They provide the same and duplicate. Of course I don't blame duplicating, choice gives more power to consumer. But the real value behind them is little closer to zero, if not zero.

<end of rant/>

Internet search engines sell key words to their customers who hope the right combination will bring more traffic to their web sites, translating into more sales, and thus unfolding the myth of getting rich while working from your kitchen. The search engines also charge for the number of hits. Certain search engines rake in billions of dollars each month based upon both criteria. Millions of small businesses spend thousands of dollars each month believing that the money is well spent. I recently spoke with a young woman who sent on search engine a check for $38,000 dollars. She purchased several key words and received several thousand hits. The total sales from this investment were $2200. I did a search based upon her choice of key words to find her website. The initial results indicated there were 7,200,000 entries in the result set. I went through 640 records before I found her link. The average user works his way through about 15 sets of records before trying another query. I tried all her key words and my first search was the closest I came to finding her site.

There are approximately 750,000 words in the English language. There are only about 200,000 in common use today. An educated person has a vocabulary of 20,000 words but uses only about 2000 in a week’s conversation. Out of the 2000 words this educated person uses each week about one third or 666 are used as adjectives that would commonly be acceptable for used as an internet search engine search criteria. Now if we consider there are approximately 666 words that would serve as search criteria, the resulting set of records I received based upon the keywords chosen by the young woman would indicate that the search engine has sold the same key words 1,440,000 times. If she had chosen all 666 words, which would have cost hundreds of thousands of dollars, the search engine would have still sold the same words 10,810 times. Amazing how much a single word is worth if you create the proper illusion. Regarding the number of hits, there is really no way to distinguish between those that were instigated by individuals choosing the site and those that were simply redirected there by software or paid to surf the net and hit certain sites. After all advertising rates are determined by the number of hits, whether by contrived manipulation or actual consumer interest the numbers are all that matter. Or are they?

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