MorningWord 8/5/13: Friday evening on CNBC’s Options Action we discussed the merits of the Web 2.0 stock rally and what it means for the broader bull market (below) when stocks with short earnings histories are producing eye-popping returns. Readers obviously know where I stand, the price action is widely speculative, and while I have seen this movie before I know that it has the potential to drag on into a mini-series.
Back in late 1999 /early 2000 there were a brave few in the hedge fund world who labeled and shorted the Pandora’s and Zillow’s of the day as ZEROS, meaning the stocks were going to $0, and for those of you who don’t remember or weren’t around then, I can rattle off a list of stocks/companies that I used to frequently trade that don’t exist anymore: Pets.com, Webvan.com, Inktomi, CMGI, Exodus, Excite, AtHome etc etc etc.com While I don’t think we are anywhere near the silliness that went on then, those companies were far closer to concepts than actual battle tested businesses, while the 2.0s have strong first mover advantages in areas where they fill a niche with a revenue model that is not solely dependent on ads.
Stock performance aside, if you are a publicly traded company and your business is conducted on the web, or better yet the mobile web, then you are the new new thing. The table below shows the performance and market caps ytd in what we will categorize as the Web 1.0 survivors/Winners, and those of the newfangled Web 2.0:
| YTD Return | Mkt Cap | Short Int | |||
| Web 1.0 | |||||
| AMZN | 21% | $139 b | 2% | ||
| EBAY | 3% | $68 b | 1% | ||
| GOOG | 28% | $302 b | 1.60% | ||
| YHOO | 39% | $30 b | 3% | ||
| PCLN | 46% | $47 b | 6% | ||
| Web 2.0 | |||||
| FB | 43% | $92 b | 2% | ||
| LNKD | 105% | $26 b | 4% | ||
| NFLX | 165% | $14.5 b | 14% | ||
| OPEN | 38% | $1.5b | 22% | ||
| P | 108% | $3 b | 22% | ||
| Z | 212% | $3 b | 29% | ||
| YELP | 202% | $3.6b | 21% |
The Web 2.0 list, are all fast growing, fairly specific business models that I think will be around in 15 years. But my sense is that they will be Tabs or Services on broader platforms, not stand alone. What’s interesting about the Web 1.0 list is in most cases out-performance to the broad market is generally stock specific, GOOG has benefited from AAPL investors looking for large cap growth in tech, AMZN who the hell knows, its just AMZN, PCLN is taking share in online travel, YHOO has largely performed on the sum of the parts of their Asian holdings, and EBAY is just stuck in the mud as investors weigh the drag of their core auction business on their faster growing businesses like Paypal.
Looking at the performance of the 2 groups ytd, the out-performance of 2.0 vs 1.0 makes sense when you consider the size of most of the 2.0, the generally small floats (excluding FB) and the high short interest. So if you ask me if the performance of 10-20 internet stocks reminds me of the end of the Web 1.0 rally some 13 years ago, I will tell you that in a very small way there are some similarities, but in no way does this group of stocks hold any sort of special significance of what could be the undoing of the raging bull market, as was the case with their predecessors. I will tell you that investor appetite for them does suggest a certain willingness to chase performance, which coupled with some other behavior does feel a bit frothy, but on a much smaller scale than we have witnessed in the last 2 stock market bubbles.
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