The demise of boo.com, the internet fashion retailer, does not herald the end of the e-revolution, n...
The demise of boo.com, the internet fashion retailer, does not herald the end of the e-revolution, nor does it sound the death knell for innovation, despite what many pundits would have you believe.
The internet is engendering a fundamental change to the business model for builders, engineers and telecoms companies alike. This is an industrial revolution in its own right, and the key technological drivers that gave birth to the new economy are continuing to develop.
Boo's problems - slower-than-expected revenue growth and high rates of cash burn - typify fundamental flaws in the business-to-consumer model. However, other areas associated with the internet are flourishing and there are still a number of companies in these areas that will surprise investors with the strength of their earnings.
So why have these stocks been going down? The recent sell-off in the tech, media and telecoms sector has been as indiscriminate as the huge rises last year. It appears that the market has yet to distinguish between technology companies with strong franchises, a robust business model and strong visible earnings streams, such as Logica, Sage and ARM Holdings, and dot.coms whose earnings projections are built on little more than hot air.
That said, the sector does not have a stranglehold on growth, take contract caterer Compass. The group's recently announced merger plans with hotels-to-media company Granada surprised many and the stock was marked down heavily. However, closer inspection reveals some clear benefits. What Granada brings to the deal is something that the highly rated growth company, Compass, has never enjoyed, strong, free cash flow.
Historically an underpeforming medium, radio is enjoying a huge surge in popularity. Part of this growth is to do with the internet, as radio's secondary nature (it can play in the background when you're working) means it is an ideal internet partner.
Advertising on radio is the fastest growing of all the traditional media at about 14% a year. Meanwhile, the scope for growth in UK radio advertising as a portion of the entire market is significant. Radio advertising was just 5.6% of total advertising spend in the UK in calendar 1999, compared with 7.5% in France and 12.5% in the US.
The fragmented and highly regulated nature of the market is obviously one of the main reasons behind this, but this too is set to change, with the relaxing of controls expected next year. This should allow companies to build scale and exploit the synergies between radio and print media, which look set to be a key theme going forward.
Meanwhile, Capital Radio's recent purchase of TV and radio group Border should also act as a powerful catalyst for further M&A activity in the sector.
Eric Moore is investment manager at Gartmore Investment Management
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From June 2019