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Wednesday, January 02, 2008

Nothing But The Net – 2008 : Look For More

A friend of mine passed on the impressive J.P.Morgan 2008 report on the internet sector - titled, "Nothing But Net". Techcrunch has also written about the report. I see that Imran Khan and his fellow equities research team at JPMorgan predict the major publicly traded Internet publishers, portals, commerce sites and search engines will continue to outpace the performance of the overall stock market by wide margins through 2008. While revenue growth for the online sector is expected to "decelerate" slightly, the team expects the earnings of Internet companies to grow more than four times faster than those of the overall stock market during 2008. The report notes that internet stocks delivered almost three times the returns of S&P stocks in 2007.
The report sees correlation between broadband penetration and ecommerce revenues. Khan expects online ad CPMs (cost per thousands) to "accelerate" during 2008 due to two big factors: a "tighter" supply of advertising inventory from major offline media outlets; and "better monetization techniques" from online publishers. The report revises the outlook for the global search advertising marketplace in 2008, predicting worldwide search revenues will rise to $30.5 billion from $26.2 billion in 2007. He attributed the growth to "strong volume trends, better-than-expected monetization, and continued robust growth in Continental Europe." Khan said search advertising will grow at an annual rate of 28% over the next four years, and would reach $60 billion by 2011. More sectoral M&A and consolidation is predicted as stronger companies shall get to do better and earn more cash. The report adds, traffic, technology and transactional volumes would drive such consolidation. Like every other tech players, international markets generate more than 50% of revenues for the players. With global GDP expansions global accelerating faster than that of the US – the revenue gap will further widen. Gobally well spread internet companies would benefit a lot. The report points out that Amazon, eBay, and Google all get about half their revenues from international markets. Yahoo gets only a quarter of its revenues from abroad. This should put at rest speculations centered on Yahoo – atleast for now, given the upside potential. Good news all around – the report sidesteps issues centered around potential global slowdowns.

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