It seems that the global e-commerce has fully matured and companies on the World Wide Web are also maturing in nations around the world, one by one.
It has taken over 20 years for internet use and functionality to go truly global. I still remember teaching internet technologies in the late 1990s and discussing the potential growth and demographics of internet use. Also, I can remember watching CNBC in 1997-8 and they were talking about the internet stock’s PE ratios being too high or stratospheric.
Back in the mid 1990s, they had a list of the top California internet companies. If you had bought 100 shares of each of these 20 internet stocks in January 1997, you would be rich. You could have done it with $50,000 and probably have several million today. The birth of the mobile devices and hand-held proliferation globally has been a big assist in e-commerce growth also along with the expanded cellular networks.
I can distinctly remember when some of the first internet stocks such as Yahoo were added to the S&P 500. There was an amazing run up in volume and price upon the listing of a stock to the indexes. However, we all also memorialize the bubble, burst and the pain of 2000-2001. If you had bought the leaders in 1997, about one-half of these speculative stocks would be broke or bankrupt, but the winners would have shot up in price or split so many times, that the long term gains would be almost unimaginable. Examples are Amazon (AMZN) and eBay (EBAY).
Much of the internet growth hype and projections of the '90s was based on demographics and internet usage. The predicted increases in e-business was fantastic.
We need only to look at the internet funds of the late 1990s to see the run up. Moreover, the S&P was overweighed in tech in the late '90s which also over affected losses for 401(k) holders in the internet bubble of 2000. If you analyze early ETF style tech funds or indexes, we see that the funds invested in the biggest market cap stocks in the internet sector. However, the problem with this is that the initial inclusion of stocks was based on initial value and hype and not fundamentals. In contrast, the new winners in the 21st Century are usually basing their forecasts on the number of users and growth which can be monetized in both services and advertising.
In the end, there are winners and losers. Internet companies with traffic, eyeballs, solutions, and customers seem to drive potential profits. If any analyst looks at reports from companies such as ALEXA.com, you may see the ranking of the websites and what companies are getting the most internet traffic in the world. This is why potential valuations of some new companies is so huge because the web traffic, users and brand is big on a regional and global scale whereas the USA is only 3.5-4% of global population.
In the last 20 years, there have some been clear victories by web companies. Take a deep breath and think of these sectors: travel, education, jobs, auctions, gaming, networking, service providers etc. Amazon (AMZN), Priceline (PCLN), Jobs & Recruiting, Internet Education such as DeVry and so forth. Please keep in mind that indirect government subsidies can make or break some internet companies such as University of Phoenix or DeVry University, but it seems that the Trump administration is investing in online education again for the disabled, elderly, and stay at home parents. What about Google (GOOG) and Facebook (FB). These valuations are truly amazing. Also, we now see the winners diversifying into many other areas. Remember, 90% or more of Google revenue is or was from advertising up until recently.
The Global Translation
The big winners in the U.S. can translate to winners globally in other countries with key demographics. Research stock price movements for Baidu, Inc. (BIDU), the Chinese internet search king over the last 15 years or MercadoLibre, Inc. (MELI), which is the eBay of Latin America.
With a billion or more people in each major region such as India, Arabia, Asia and with a large Spanish speaking population worldwide, there is vast potential with internet stocks that are traded on the US and global markets.
Interestingly, many of the leading offshore internet stocks from countries outside of the U.S. are listed on the NASDAQ and New York Stock Exchanges. Thus, we can all invest in this expansive, global internet gold-rush. Even if you can't buy a stock that you want on the U.S. exchange, there are many ETFs and funds that may hold (highly sought after) offshore-company stock inside of their fund.
The U.S. had low interest rates for the last 9 years. The Federal Reserve has now raised rates a few times. Will this slow down investment? Will small startups continue to be able to borrow money at a reasonable cost?
That will be for the future to decide. With the stock market at all time highs, unemployment at 65 year lows, and interest rates moving up, there could be a slowing of the U.S. market indexes going forward for a few years rather than a correction.
However, if rates are raised any higher, the probability of a correction goes up quickly based on what we have seen in the past because disposable income for all workers and investors is reduced with higher interest rates on credit cards, mortgages, school loans, inventory and the like.
In the end, global internet and tech stock prices are looking attractive again in many sectors such as Russia, Brazil, China and India and even in other places such as Arabia and Africa.
George Mentz JD MBA CWM Chartered Wealth Manager ® is a licensed attorney and CEO of GAFM ® global education, which is an ISO 29990 Certified professional development company operating in over 50 nations. Mentz is an award winning author and advisory board member to several companies around the world in education, charities, and crypto currency.
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