JPMorgan’s Internet analyst Imran Khan and his team released a massive 312-page report this morning titled Nothing But Net that paints a bullish picture for the major Internet stocks (Google, Amazon, Yahoo, eBay, Expedia, Salesforce.com, Ominiture, ValueClick, Monster.com, Orbitz, Priceline, CNET, etc.). Some key takeaways:
—Noting that, in 2007, Internet stocks delivered a 14 percent return versus 5 percent for the S&P 500, JPMorgan expects 34 percent earnings growth in 2008 for the Internet stocks it covers versus 8 percent earnings growth for the S&P 500.
—In general, as broadband penetration continues to rise, so do e-commerce revenues:
—But advertising revenues actually outpace the adoption of broadband:
—Free cash flow at large Internet companies will keep going up, fueling M&A and share buybacks. JPMorgan estimates that free cash flow among just five of the top Internet companies (Google, Yahoo, Amazon, eBay, and Expedia) will rise from $8.8 billion last year to $12.5 billion in 2008. That is a lot of money for Web 2.0 acquisitions. Top acquirers Yahoo and Google, for instance, each spend about a third of their free cash flow on acquisitions.
—Search advertising will continue to dominate, rising from $22 billion globally last year to $50 billion in 2010. Here is JPMorgan’s forecast for the U.S. search advertising market (it expects global search revenues to rise 38 percent in 2008 to $30.5 billion):
—And here is its forecast for the U.S. graphical advertising market. Average CPMs for online ads, which bottomed in 2007 at $3.31, will start to rise again (see table below):
—As global GDP continues to grow faster than U.S. GDP (3.9 percent versus 2.2 percent in 2007), Internet companies with global reach will benefit. Amazon, eBay, and Google all get about half their revenues from international markets. Yahoo gets only a quarter of its revenues from abroad.
I think ‘08 is going to be one hell of a ride.. Hold on..
So how do internet companies take advantage of a global market? Is there more than just language barriers?
About a month ago TechCrunch posted an article about a GENI clone. Basically, Geni didn’t take advantage of the global market and another filled the void.
I don’t suppose the original document is posted anywhere?
Honestly predicting a continue on the up’turn for the internet…
is like me saying its going to rain, in seattle,wa sometime next year.
its guaranteed. The internet is too young and still living off the rebound from the early 90’s bust.
.rb
Do you have a link to the full 312 page report? Tried JM Morgan’s web site, but to no avail.
Yet another generally-unavailable Nothing But Net?? Yawn :-/
How did their last year’s do for all those full 268 pages as the 2007 i guide?
ie., http://seekingalpha.com/articl.....ill-be-key
Unfortunately, strongly reminds of the ex-boo.com, yes, that boo hoo…
coincidentally also of European key reference [of spectacular failure]..
Funny, these investment bankers did such a GOOD JOB of predicting the dotcom bust of 2000 and the mortgage credit crisis of 2007. Oh wait, no they didn’t.
It’s easy to get a job at as an analyst:
1) Take a data series of company growth and earnings.
2) Extrapolate the series into future years
3) Plot a graph in Excel
There, I’m a genius and these companies are going to grow to infinity regardless of if the economy is tanking! Now pay me my 300k a year please.
the NET is like a drug…. the more you get high the worst will be the fall…
Erick,
Any chance of you linking to the full article?
Thanks
here is a link to the report:
https://mm.jpmorgan.com/stp/t/c.do?i=2082C-248&u=a_p*d_170762.pdf*h_-3ohpnmv
Erick,
If you have the report can you email it?…In return I’ll share a presentation with you that shows some data from another brokerage house that came out in December.
so it seems some moderate criticism would be good for some openness..
Thanks, TCK
TechCrunchKnows
Now if JP Morgan and the rest of the financial community can only look into their crystal balls and tell us which Bank, Brokerage House or Hedge Fund won’t be in need of money from other countries and which countries will own them as 2008 ends.
The long term fundamental net trends will continue… but what the stocks do can and will decouple at times because, primarily, of sentiment, liquidity and risk apatites.
Not bad to invest I guess, I have few stocks with google since last year
Is Google fragile? - a bubble waiting to burst?
Software companies will continue to prop up the market from a web perspective - but a company structured around PPC advertising? - not so sure.. “POP”!!
Oh god.
This is just going to add to the bubble.
Sell-side analysts = contrary indicator
Nobody can predict the future…least of all, sell side analysts at JPM. It’s product they’re selling; nothing more. You think they’re *really* going to tell you what they think? No. They plow you into their BS and then bet against you.
Smart money > dumb money. ~ Mr. Shepard
the link to the report doesn’t seem to work. can someone send an updated link?
#1 - “I think ‘08 is going to be one hell of a ride.. Hold on..”
Thank you! I will. It’s going to be a fun one indeed.
Mike
Here’s the problem with the report - it does not take into account macroeconomic issues plauging 2008-2009. Worldwide growth in credit (mainly due to negative real interest rates in Japan - known as the yen carry trade) coupled with a speculative lending binge that is just now beginning to unravel, has caused a dramatic vacuum in the credit markets that governments are having to step in a fill - this is always a precursor to economic recession. The last 4 years have been strong due to macroeconomic issues, not broadband penetration (bb penetration has increased due to macroeconomic growth) - if the economies around the world revert to the mean next year (meaning they go down, hard) and the US does as well (which is expected) it doesn’t matter how many people are online - people will spend less, ROI will decrease, and revenue online will decline, plain and simple. It happened in real estate the EXACT SAME way (but, everyone needs houses, and prices always increase with increased land development - sound familiar?)
Only problem with Google - it has never faced decline in rev or keyword prices - when keyword prices fall due to demand issues, they fall hard because it is a bidding system, not fixed prices. A couple of key accounts that prop up prices, going out of business could lead to 20-30% drops in revenue for the majors.
I’ll leave with this - ecommerce this year was up only 19% versus 26% last year even though bb penetration was highest this year. Ecommerce determines ad spend - plain and simple. Buy bonds.
Nice report. But I don’t want to hear about Google and the big powerhouses. I want to hear more on small businesses, and their aggregate impact on the Internet and the U.S. economy. Small businesses are producing 53%+ (and climbing) of the GDP, and truly, most of us aren’t Google and will never be. I will watch for more on TechCrunch.
a report like this doesn’t mean squat. but hey, if you want to buy on this analysts’ number crunching, be my guest, i’ll be shorting every last one of you suckers all the way into chapter 11.
cheers.
the real rb.
dheeraj, couldn’t agree with you more.
i’ve been waiting 10 years to make my millions lost back shorting ebay and google, and this year is going to be the one.
google will get hit someday, an antitrust suit, a microsoft hostile takeover, a competing technology, and the advertising world will come crashing down like all those plastic sand hill road dot com bricks they were masoning with silly putty in the late 90s.
ebay’s business model has nothing to do with auctions now, amazon.com is getting pulverised by shopping engines, and seo payouts will shrink into the microcents as the millions of garbage blogs run google’s fraud accounts into billions.
online commerce may grow, but the underlying fundamentals of the internet now are making a quick buck on the backs of fools.
go short and sit back, enjoy the ride.
it’s going to be one hell of a drop…
anyone want to ride in my 2009 audi R8 in next year’s gumball 3000 rally?
highest bidder wins. or BUYNOW for E100K.
cheers.
rb.
just look at this site. arrington’s no genious. this is the most money he’s made in his entire career.
bravo, mike.
rb.
Anyone get the report link to work? Seems there’s a problem with the pdf file. Much appreciated.
Very much in agreement with you, Dheeraj - nice analysis.
I want to add one thing: ecommerce should still grow in net terms but growth rate will slow much more than 07. Competition among the online biz in this macro condition will even drive some biz’ revenue down. Paradocixally, higher broadband penetration will only have negative effect until the macro picture improves.
That “cash flow” 2008 projection for eBay is ultra-conservative. I’m guestimating closer to $4+ billion.
Why is the market so down on eBay. F’ing-a, just rename it PayPal and all will be happy with the crazy growth and a side business of auction.
Jesus folks. eBay practically prints money.
Looking at table 10 for US Search Advertising Revenue Forecast, how come the clickthrough rate is so high(over 25%)?
Does it mean every 4 time I search on a search engine, I click on a ad link?
This is good news for real Web 2.0 companies that have built real revenues and profits. Why? As the majors continue to expand earnings at a faster rate, their PE climbs and they’re acquisitions will be at higher multiples.
Cheers,
George
It is a biiiiiiiiiiiiiiiiiiiiiiiiiiiiiiig picture.But how to realize this picture?
Dude if it’s a bubble you better dust off your typewriter.
I’d like to point anyone who hasn’t seen it yet to the Here Comes Another Bubble video: http://www.youtube.com/watch?v=I6IQ_FOCE6I
JP Morgan - Nothing But Net 2008:
http://www.fileurls.com/fabvwe
I just downloaded the report and have scanned it. My overall reaction is of being impressed by the volume of research and underwhelmed by the analysis. I thought they stated the obvious in many cases (newspaper advertising will continue to decline), and were overly optimistic on the state of the economy and on ad margins. Only time will tell how good their forecasts are. I think it is not bad for what it is: a short term view of stock prices for public Internet companies, though, it should be read with a critical eye.
I have some shared some more thoughts on http://technologyvisionary.blogspot.com/
Stop clicking on Google’s advertisement links and watch their revenue fall from the sky.
As more and more moves to the net, i still feel that a company needs a strong off line branding campaign to be a success on the internet. Big companies like amazon and Google will dominate, but small internet companies will struggle to survive.
An interesting report.
It’s impossible to take a sell-side report like this seriously - JP is pumping these companies to have a better shot at their impending M&A deals (one thing it certainly gets right).
A report containing their top analysts’ true positions would most certainly NOT be released online for the masses to absorb and download.
If anyone wants to download the full report here is a link (rapidshare)
http://rapidshare.com/files/81354617/c.pdf.html
While it is true Google gets about half its revenue from
outside the US, most of that is from places whose GDP
growth mirrors the US. A US slowdown will affect Google
significantly. They have little share in most of Asia, where
GDP growth is highest.
How do I obtain a copy of this report???? “Internet analyst Imran Khan and his team released a massive 312-page report this morning titled Nothing But Net”
Thanks