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December 24, 2005
2005 New year - stocks
In 2006, the Net industry is focused on that mantra and variations of it: more individuals going online, staying online, communicating online, creating and mixing their own videos and blogs online.That shift in consumer behavior helped the winners in 2005 as they
attracted advertising dollars from marketers seeking to all manner of
customers. And the No. 1 one place to find them has been Google (GOOG:GOOG
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, one of the main reasons the search-engine's stock has stayed in the stratosphere more than a year since going public.
Google shares more than doubled this year. The stock soared nearly
400% since going public in August 2004 at $85 apiece. Although Yahoo (YHOO:YHOO
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is also one of the leading search engines, it hasn't been able to make
as much money as Google on its audience base. Shares of Yahoo are set
to end the year at $40, up 5%. Amazon.com (AMZN:AMZN
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, which is positioning itself to enter the local advertising market, saw its shares gain 10%.
But two other Net titans stumbled. EBay (EBAY:
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shares fell 24% and InterActiveCorp (IACI:IACI
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is trading around $28, down from $30.67.
One of the reasons eBay lost ground was because buyers no longer saw
it as the main location to do transactions. The Web as a whole became
the marketplace, thanks to search engines, especially you-know-who.
About 40% of online shoppers started their shopping at Google, 21%
started at Yahoo while only 23% started at eBay, according to a 2005
holiday retail survey.
Big deal-making
But 2005 was a year marked by significant investment strategies by
the Internet's big guns. EBay pulled off the $4.1 billion purchase of
Skype, the provider of phone calling over the Internet. Google raised
$4 billion in a secondary offering, spurring awe and fear about the
growth opportunities it will invest in for 2006.
One big bet is that Google and others will do what they can to get
everybody onto the Internet. To that end, the likes of Google and
EarthLink (ELNK:ELNK
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want to bring WiFi to cities across the land, to allow for even greater
Internet activity as more people get high-speed access via free or
low-cost connections.
As the experience improves, and the online community grows larger,
more people will find the Internet useful and stay online longer. Or so
the Internet business world hopes.
Teenagers are already spending more than one and sometimes two hours
a day to socialize on social-networking sites, like Facebook and
MySpace. In July, News Corp. (NWS:NWS
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acquired MySpace's parent for $580 million.
Advertisers targeting teenagers and adults will continue to shift ad
dollars onto the Web, making next year a turning point in television's
dominance. It's estimated that television advertising spending will
plateau in 2006, at which time it will account for 38% of all worldwide
ad spending, according to ZenithOptimedia. By comparison, online
advertising continues to ramp up and is estimated to grow by 22% in
2006, and reach $30 billion by 2008, according to the research company.
Additionally, more people will want Web content on the go, helping to sustain the popularity of Apple's (AAPL:
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iPod line of products. It's estimated that sales of MP3 players will
rise 29% next year to 20.5 million units, and mobile phones are
expected to jump 23% to 104.5 million units, according to the Consumer
Electronics Association. Many of the handheld devices out next year are
expected to have video capability.
Download controls
Copyrighted video will also become more accessible in 2006 because
content companies will want to recoup lost dollars from consumers'
recording shows with their digital video recorders to watch them later
or consumers illegally downloading videos. NBC Universal President Jeff
Zucker told an interviewer earlier this year there are 436,000 illegal
downloads of "Battlestar Galactica." But with NBC's deal with Apple to
sell shows at $1.99, he hopes consumers will choose to buy the show as
opposed to stealing it.
Time Warner's AOL and Google announced an expanded strategic
alliance, consisting of a $1 billion investment by Google for a 5%
stake in AOL. Additionally, AOL will provide certain video content to
Google.
NBC Universal, as well as Walt Disney (DIS:
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and Viacom (VIA:VIA
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,
or video aggregators, like Yahoo and Google, will increasingly be
testing ways to get content onto devices or online in order to make
video available to the consumer on demand and a la carte. Google stated
that it will soon introduce a service whereby consumers can pay to
download video content, according to Bear Stearns.
Additionally, Internet companies or media companies will experiment
with ways to tap into user-generated content. Yahoo is launching "Wow
House," a reality TV show that will be part of its Interactive
technology channel.
Just like music singles drove online content sales to nearly $1
billion in the first half of 2005, according to the OPA, video sales
will catch on. In 2006, sales of video content, like music videos or
shows, for 99 cents apiece on Comcast or DirecTV, or $1.99 purchase on
Apple's iTunes music store, will begin to slowly ramp up and catch on.
And now comes another year of changes in technology and consumer behavior. In that vein, here are some key stocks to watch.
EBay
In 2006, Skype, the Internet-based phone service eBay purchased for
about $4 billion, is expected to generate $200 million in sales from
selling voice services, such as SkypeOut. With more than 50 million
Skype members, this shouldn't be difficult to achieve, says Walter
Price, portfolio manager of the Allianz RCM Global Tech fund. If the
pay-per-calling model begins to emerge, eBay and Skype will be among
the first that will have a chance to test this new way of getting
marketing or advertising fees from local merchants or professional
service providers.
Netflix
Netflix (NFLX:
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had a significant run this year, because even though Wal-Mart (WMT:WMT
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and Blockbuster (BBI:BBI
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have entered its market, the upstart is still the place to rent DVDs.
That's not likely to change soon. Even though more people will
experiment with downloading movies from the Internet, that content will
be limited by Hollywood's nervousness about the Internet and by a
paucity of affordable devices on which to play Internet-derived content
on television.
Yahoo
If consumers begin to spend more time entertaining themselves rather
than informing themselves on the Web, Yahoo - with its budding media
unit -- is better positioned than Google to offer that type of content.
Moreover, Microsoft and Yahoo may forge a greater alliance now that AOL
has embraced Google through its $1 billion stake. Microsoft's MSN and
Yahoo's instant messaging clients are to be integrated in 2006. Any
investment by Microsoft might help Yahoo's shares.
Despite Yahoo's position as a beneficiary of the shift in
advertising dollars toward search and media properties, Yahoo's market
cap is half that of Google's. Its share price was practically flat,
compared to Google's in 2005. Yahoo is expected to generate revenue of
$4.7 billion next year, up 29% from this year. Google, however, is
estimated to grow sales twice as quickly, or by 60%, to $6.4 billion.
Google is also growing profits quicker than Yahoo. But Yahoo's
management team is sharp as a whip. If anything, Yahoo's stock is safe
compared to Google's.
That said, growth investors will still look to Google for returns.
Given Google's serious run-up this year, there may be some tax-related
selling at the start of 2006. After the stock comes under pressure,
investors might want to take a long position in Google and short
Microsoft, according to Peter Thiel, fund manager of Clarium Capital.
December 24, 2005 at 09:13 PM in Internet evolution, eCommerce | Permalink | TrackBack (52) | Top of page | Blog Home
