Net Companies Move Beyond Survival Mode

Maybe the death of the Internet stock sector has saved the Internet stock sector.

A year ago, Internet stocks were near-pariahs, still suffering from guilt-by-association with the late-'90s bubble and dismissed as overpriced despite their precipitous declines.

Now they're one of the hottest groups of stocks on the market, with many pushing 52-week highs -- sparking a new debate across Wall Street over whether this is a bubble as well.

Why are so many net stocks doing well? Why, for example, has online broker AmeriTrade (AMTD Quote) more than tripled over the past year, going from $2.95 to $9.82? Why has eBay (EBAY Quote) doubled, and why have Yahoo! (YHOO Quote) and Amazon.com (AMZN Quote) more than tripled?

Well, for starters there's the fact that these companies are offering investors a bit of what has become a scarce quantity in techland, growth. At eBay, revenue and earnings doubled in the latest quarter; Amazon continues to expand quickly on the back of its free-shipping efforts. Then there's the fact that all have been showing discipline in cutting costs and therefore are squeezing more out of each dollar of revenue.

But most of all, oddly enough, it seems like these companies are excelling, both in operating terms and in the market, because the novelty of the Internet stock has at last died out.

'Healthier'

The Net stock boom, though still vividly imprinted on the minds of investors it burned, is receding into the past, leaving a limited number of companies that have survived a dangerous childhood to the relative safety of adulthood. Both Wall Street and the general public have stopped looking at Net stocks as a symbol of a fabulous wealth off in the future, and started looking at them as real tools for right now.

And finally, having apparently endured what appears to be the worst of the tech and general economic slowdowns, expectations are low. Upsides, rather than appearing to be a God-given right, are now pleasant surprises. Thus the solid gains this week in AmeriTrade, for instance, after its near-doubling of revenue in the latest quarter.

< Previous

1 2

Next >