By Louise Johnstone While the internet is expanding exponentially, stock-picking among the dot.coms ...
By Louise Johnstone
While the internet is expanding exponentially, stock-picking among the dot.coms remains essential, according to Framlington.
Speaking at the Investment Week Markets' Forum earlier this month, the manager of the group's NetNet unit trust, Chris Bell, said there would be more losers than winners in this part of the market.
There are downward pressures on margins for both online and traditional businesses. A good example would be with books and CDs, according to Bell.
He added that while news of the internet seems to be everywhere in the media, some e-commerce businesses such as Boo.com, selling fashion online, have been cagey about releasing performance figures. He said perhaps this indicated that the net is not a one-way ticket.
The spread of the internet has been vast but the potential for further development remains.
The internet now reaches some 39% of the US population and within this market it is a key component of the economy, contributing 15% of regional GDP growth and 2.5 million jobs, according to Warburg Dillon Read.
The group has further projected that global internet revenues will equal $1.2 trillion by 2002. It also claimed that within Europe the internet has reached a critical penetration level and should have some 136 million users by 2002.
Bell said that one reason for the spread of the internet is the falling cost of PCs. Not only are more users coming online but they are also staying on the net for longer. In 1999 users are online an average of 50 minutes per session compared to 19 minutes three years ago, according to Bell.
He said: "The longer-term users are now more relaxed about it and have hopefully started out with successful smaller purchases and are now buying more and more."
Simon Roberts, head of UK equities at Lazard, said the advent of the internet meant many people were concentrating on making great money not great companies. Some techs were trading on 100 times their earnings and the market was seeing a massive amount of overinvesting.
He added: "A lot of these companies will not be around in 10 years."
The new economy is a genuine phenomenon he said but the future of this market lies not in retail but in how companies will use the internet in a business-to-business context.
The big companies that embrace the new technology will get bigger, he predicted, while smaller companies will find it harder going.
Roberts said it was important for investors to see what the relative importance of IT was in companies.
As an example, Roberts said the market would undoubtedly move to internet banking, so the question was which of the established banks would be the first to break up the traditional branch network.
In this environment Roberts said the value managers would struggle as everyday names, and would lose out and disappear as the internet increased its influence.
His final tip was that premium valuations for technology companies were appropriate while the transformation was occurring. The market was overvalued and would discount early. However, Roberts could not predict when this would happen.
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