Newspaper article The Christian Science Monitor

For Net Stocks, Wild Rides Aren't over Yet ; Google's Recent $130-a-Share Loss Fits a Familiar Technology Pattern

Newspaper article The Christian Science Monitor

For Net Stocks, Wild Rides Aren't over Yet ; Google's Recent $130-a-Share Loss Fits a Familiar Technology Pattern

Article excerpt

The plunging share price of online giant Google is serving up a volatile reminder that the Internet revolution is still relatively young - with plenty of opportunity for investors to lose money as well as make it.

The company's stock peaked at $475 per share Jan. 11, only to dive back into the $340s this week over uncertainty about future earnings.

But Google's wild ride, while wrenching for shareholders, isn't the precursor of a new dotcom bust. The Internet is following the pattern of earlier technological revolutions: moving from early phases of boom and bust toward maturity.

Already, the landscape of Internet stocks is more stable now than in the late 1990s, analysts say. Even for Google, the youngest and priciest Internet powerhouse, the recent fall is on the order of 25 percent, hardly unusual for a fast-growing company.

"Google actually in terms of its life cycle is way ahead," says Aswath Damodaran, a finance expert at New York University. "In the late 1990s, we were buying stocks when there were no revenues. It was all expectations."

Today's Internet companies have not just revenues but profits. And after the bursting of the first Internet stock bubble in 2000, both the businesses and their investors have had a reality check.

But if it's no longer a blue-sky world for investors, the industry remains a young one. Putting a dollar value on a share of Yahoo, Amazon, or eBay is as much about guesswork as about analysis of current revenues and products.

Dr. Damodaran reckons that about 90 percent of Google's value reflects what investors hope will occur in the future, as the company expands from its position as the dominant search tool on the Web.

That helps explain the recent roller-coaster ride.

Last month, Google reported earnings gains of 81 percent over the past year, but that number fell short of forecasts. The trouble was compounded after a cover story in Barron's said the company faced stronger competition in a key area of revenue growth: sale of online advertising.

Skeptics have also raised concerns about "click fraud," the notion that the measurement of Web traffic - the driver of ad revenue for Google and others - is chronically inflated. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.