State of the Web: Spotting Winners on the Web - TheStreet

State of the Web: Spotting Winners on the Web

Organic growth is the key to finding winning stocks in the Net space.
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Organic and viral. Sure I throw those words around. So does everybody else in this Web business. With good reason. Because we're trying to find Web applications that grow without ad dollars and that seize the public fancy. We want to find companies with a product that grows regardless of promotion. Organic growth is the key to finding winning stocks in the Net space.

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When we say we've found an application that grows organically, we mean that it doesn't need the stimulation of millions of dollars of dot-com ads. We're in an industry that is measured primarily by page views and only secondarily by revenues.

That's because page views can be monetized, if not by your company then by someone else.

What are some examples of organic growth?

Blue Mountain Arts

is the classic example. Without any publicity at all it became the de facto greeting card company for Netizens. So even though it had no revenue to speak of it was able to attract a huge bid from a respectable Net company.

Another example is chat, which seems to have a life of its own and generates giant page views, if left alone and allowed to flourish. (

TheStreet.com

is about to launch new message boards that should foster this kind of growth. Look for them soon!)

A third example is all of these sports affinity sites that have become so popular. They are growing virally, meaning that they seem to expand at double and triple the rate of all other sites. That's the kind of growth that ad agencies, despite all their suggestions about how to position a site and stimulate growth, only dream about.

Finally,

Yahoo!

(YHOO)

Finance is the ultimate organic growth story. Companies pay Yahoo! Finance to let them aggregate copy. Then people use Yahoo! Finance as their home page, chat page and portfolio keeper. It keeps growing, and growing and growing. It's the best business model in the industry.

If you want a handy way to value this kind of growth, measure a company's ad spend vs. its page growth. You want to see low to no ad spend and massive page growth. Then you know you have an organic grower, and, of course, a winner.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Yahoo!. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.