Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Tuesday, June 14, 2005: The
Euro has dropped to a nine-month low against the dollar. It's down to $1.22
from $1.35 at the start of this year. This reflects less on the U.S.'s brilliant
economic management and more on the rigidity of rules affecting business in
Europe and resulting poor economic performance. Unemployment is over 10% of
the workforce in Germany and France. Italy is in recession. The European Central
Bank may cut interest rates -- for the first time since 2003.
Europe will be
a little cheaper this summer. The bad news is that cheap fares (especially in
and around the U.S.) are filling planes and will create massive delays. Take
books, food, water and pillows.
echo of a boom? The Economist has a neat
piece. It confirms my increasing belief that Google (GOOG) is way overpriced.
shares are booming again, with Google leading the way. Is this stellar performance
justified? Or should investors worry that another correction is on the way?
REMEMBER etoys.com? What about Webvan.com? Do Boxman.com or Boo.com ring any
bells? Pets.com, perhaps? The casualties of the dotcom bust have long closed
or changed hands since the heady days of the late 1990s turned to the crash
of the new millennium. But of the internet firms that survived the demise
of the new business paradigm, many are now enjoying soaring market
values as investors regard online enterprises with renewed confidence. And
new firms are coming to market too, amid no small amount of excitement: for
instance, PartyGaming, a gambling website, is working on an initial public
offering (IPO) that values the firm at about $10 billion. Is this a new fit
This week Googles
share price rose to take the firms imputed market capitalisation to
just above $80 billion, pushing the internet search engine past Time Warner
to become the worlds most valuable media company. Its shares are now
worth $285 apiece, three times more than at its IPO last August. That Time
Warner has been overtaken by an online upstart is symbolic for the growing
band of sceptics who detect a return to the overvaluation and hype of the
was involved in the most disastrous merger of the period, when in 2000 it
joined forces with America Online. Fans of the deal said that the brash AOL
would drag the staid but solid media giant into the new business age. But
the deal failed to live up to expectations. The renamed AOL Time Warners
colossal valuation melted away as the bubble burst. A couple of weeks ago,
Time Warner (tellingly, the AOL has gone from the name) was said to be considering
a spin-off of its underperforming web-based partner, so bringing the ill-fated
venture to a close.
But those who
would draw parallels between then and now should note that much has changed
since the tech revolution faltered five years ago. Investors, battered by
the stockmarket crash that accompanied the demise of the dotcoms, are now
a little wiser. Certainly they are unlikely to hand over considerable sums
of cash to any online entrepreneur with a half-baked business
plan. The hype and hysteria that accompanied every new scheme to build market
share through first-mover advantage is over.
the online giants such as Google, Amazon, MSN, Yahoo! and eBay operate in
a different business climate. Since the bursting of the dotcom bubble consumers
have logged on to the internet in increasing numbers and have become more
comfortable conducting business online. In 1999, some 150m people worldwide
used the internet; today, over 1 billion use it regularly. And those who venture
into cyberspace are increasingly willing to spend money there.
the most enthusiastic adopters of e-commerce, spent just over $69 billion
buying things online in 2004. According to emarketer, a research firm, that
figure is set to double to $139 billion by 2008. Similarly, those firms that
depend on advertising have enjoyed growing revenues. Last year, internet-advertising
revenues in America hit $9.6 billion, up from $7.3 billion the year before.
However, despite early predictions that the web would be a free-for-all, the
lions share of this market is now in the hands of a few giants, with
the top ten commanding 71%.
So in many ways
the hopes for the internet of the dotcom boom years are now coming to fruition.
Yahoo!, which peaked at a market value of $125 billion in early 2000, had
slumped to $4 billion by late 2001. Now it is worth $52 billion. And like
numerous other internet firms that were once worth a fortune despite making
no money, it is now actually turning a tidy profit: $840m after tax, on revenues
of $3.6 billion, in 2004. Google itself enjoyed revenues of $3.2 billion last
year and made a profit of $400m. But they are still far behind the biggest
old media companies. Time Warners revenues for the year
were $42.1 billion, for instance, and its operating profits $6.2 billion.
obvious dissimilarity between the performance of todays online leaders
and older, more mature firms, the rapidly improving financial performance
of the dotcom survivors has persuaded investors to open their wallets. This
has pushed the Dow Jones internet index up by 10% in the past two months (see
chart). Googles worth could top $100 billion sometime this year if the
with stakes in big internet companies, and Google in particular, might pause
for thought. Although revenues and profits are rising steeply, valuations
are rising disproportionately quicklysuggesting that another correction
is likely at some point. Also, advertising revenues on the webon which
firms like Google rely heavilyare not growing as rapidly as online sales
of goods and services. And although Google commands over half the worldwide
market for online searches, its share is falling.
to such threats, the online giants are encroaching on each others territory.
The leading auction site, eBay, recently bought shopping.com, a shopping comparison
site, a service already offered by Yahoo! and Amazon. Google, Amazon and Yahoo!
also host auctions, though they have some way to go before posing a serious
challenge to eBay in this business (see article). And while profits are growing
fast, other new competitors may be tempted to join the fraythe barriers
to entry in most online businesses remain low.
todays big online ventures are on a surer footing than those that fell
in the last dotcom crash. They are, unlike most of their erstwhile but now
defunct peers, being run like proper companies. And there is a bigger pool
of customers willing and eager to pay for their services. Google
has even entered the language as a useful verb for describing a web search.
For now it seems inconceivable that it, or a big competitor, might disappear.
But there is little doubt that Googles valuation looks suspiciously
frothy. Do investors in internet stocks really need reminding that what shoots
up can just as easily come crashing down?
days you can make more screwing up: Actually it's not true. Philip
Purcell who messed up Morgan Stanley, doesn't have a severance package. But
he must have figured his days were numbered last year when he upped his 2004
compensation by 2004 and awarded himself (oops, the board went along) huge stock
and option grants of $48 million plus. Jealous, don't be. In adition to the
$62.3 million, he's only getting a pension of $1.27 million a year for life
-- his life, not Morgan Stanley's life.
Morgan Stanley (MWD) under Philip Purcell.
This stock is not worth buying until we find out who will replace Purcell. The
Wall Street Journal reports Morgans is having huge difficulties finding
a replacement. My personal recommendation: Dan Good, who long ago ran A.G. Becker,
an ultra-successful Chicago investment.
least someone loves this weather. A young editor, Mark Young, who
once worked for me, found slim pickings in the magazine business during the
Tech Wreck of 2000 to 2002. He went to ice cream school and opened an ice cream
store in New York. He loves his new business. Yesterday I lamented the yuchy
weather we've been having. Mark emailed me:
is great!! We sell a shitload of ice cream when it is hot, sticky and disgusting.
Bring it on!!
more bananas: Bananas contain a natural chemical which acts as a
mood enhancer. This same chemical is also found in Prozac. Bananas are cheaper
and probably better for you. Don't they have potassium?
To Duck Cell Phone Taxes: Forbes has a piece
on how to save a few dollars on your cell phone:
have not been proven to cause cancer, so why exactly are they taxed like they
head of the main cell phone lobbying group, recently complained to Congress
that the average 16.8% in combined federal, state and local taxes his customers
pay has traditionally been levied on products like cigarettes. Americans pay
an average of just 6.9% for typical non-carcinogenic goods and services.
phone taxes may seem like one of life's annoyances you just can't do anything
about. In fact, as I recently discovered, you can.
So far, cities
and towns have gotten away with treating the country's 182 million cell phone
subscribers as easy marks. Cell phones taxes increased nine times faster than
taxes on other goods and services between January 2003 and April 2004, according
to one industry study. In a particularly egregious case, Baltimore just hit
its residents with a new $3.50 per month tax.
cell phone taxes are likely to have another effect: More people will go to
the effort of dodging them.
I did. A year after moving to Los Angeles from New York, I was reading my
Verizon Wireless bill and noticed I was still paying New York taxes. New York,
as it happens, has the highest state and local taxes in the country: 16.2%
(if you add federal charges, it's 22.2%). I estimated I was giving my former
city and state about $75 per year they didn't deserve.
When I called
Verizon Wireless, a joint venture of Verizon Communications (VZ) and Vodafone
( VOD), to complain about the tax screw-up, I learned something odd. The operator
told me that as long as I kept my old New York number, I would have to keep
my old New York tax bill. It didn't matter that I had switched my billing
address to L.A., she said, taxes are linked to area codes. If I wanted to
pay L.A. taxes, she suggested, I needed to switch my phone number to an L.A.
That gave me
a better idea. There are some states, blessedly, that don't soak their cell
phone-using residents. One of those, I happened to know, is Idaho--a state
I visit regularly. (The Gem State has a 2.2% tax rate, I would later discover,
the fourth lowest in the country.) Well, I triumphantly informed the operator,
I am moving to Idaho.
Since it was
clear I'd have to lose my coveted New York number to avoid Verizon-levied
taxes, I changed to an Idaho number, provided an Idaho address, then promptly
turned around and requested paperless billing, which I paid from my Los Angeles
Since my fake
move, my monthly bill has shown a tiny Idaho tax of about $1.15 per month.
At that rate I figure I am saving about $60 per year. If I was a bigger cell
phone user, I would have saved far more. (I learned later, if I wanted to
be a real cheapskate, I should have "moved" to Nevada, which holds
the record for the country's lowest cell phone taxes at just 1.1%.)...
do we have to speak English?
A U.S. Navy Admiral was attending a naval conference including admirals from
the U.S., English, Canadian, Australian and French Navies.
At a cocktail
reception, he found himself standing with a group of half dozen or so officers
that included personnel from most of the countries.
Everyone was chatting
away in English as they sipped their drinks, but a French admiral suddenly complained,
whereas Europeans learn many languages, Americans learn only English.
He then asked:
"Why is it that we always have to speak English in these conferences rather
than speaking French?"
the American Admiral replied: "Maybe it's because the Brits, Canadians,
Aussies and Americans arranged it so you wouldn't have to speak German."
The group became
the code: I rewrote some code on this site. My column should now
This column is about my personal search for the perfect investment. I don't
give investment advice. For that you have to be registered with regulatory authorities,
which I am not. I am a reporter and an investor. I make my daily column -- Monday
through Friday -- freely available for three reasons: Writing is good for sorting
things out in my brain. Second, the column is research for a book I'm writing
called "In Search of the Perfect Investment." Third, I encourage
my readers to send me their ideas, concerns and experiences. That way we can
all learn together. My email address is .
You can't click on my email address. You have to re-type it . This protects
me from software scanning the Internet for email addresses to spam. I have no
role in choosing the Google ads. Thus I cannot endorse any, though some look
mighty interesting. If you click on a link, Google may send me money. That money
will help pay Claire's law school tuition. Read more about Google AdSense,
here and here.