The Internet refers to the World Wide Web, which is the familiar “www” prefix found in all web site URLs. The Internet is one of the top innovations over the last few decades, and it has become a critical platform for both businesses and people. The significance of the Internet in the global marketplace is only expected to grow going forward.
As I have recently discussed in this column, I am positive on the technology sector, yet there is also some obvious froth in these stocks, namely in the social media space.
My freshman son in high school is currently producing a sports blog that I admit is pretty good. In less than a week since going live, his blog has more than 40 unique visitors and well over 200 page hits. He is asking how he can make money from blogging. I say it’s all about the eyeballs and traffic to your site and how active the users are.
If you simply look at the social media space, you’d realize the massive money being thrown around in driving the valuation of companies in this space. Facebook, Inc. (NASDAQ/FB) comes to mind, which I recently named as one of my top plays in the Internet sector. When you have more than a billion subscribers, the upside is enormous if the company can monetize its traffic.
In the case of my son, he has a long way to go, but for companies like Facebook or Twitter, Inc. (NYSE/TWTR), they have the eyeballs, so now it’s all about converting them to money. (Read “Two More Internet Stocks to Watch.”)
If you doubt the euphoria in the social media sector, think about Facebook deciding to put down a whopping $19.0 billion to acquire mobile messaging company WhatsApp. The four-year-old company is growing exponentially, with more than 450 million users taking advantage of its cross-platform mobile messaging service each month. The deal makes sense for Facebook, as it adds an additional mobile service … Read More
We all know about some of the insane valuations with social media and Internet services stocks, such as Twitter, Inc. (NYSE/TWTR), Facebook, Inc. (NASDAQ/FB), and Yelp, Inc. (NYSE/YELP), as I have discussed in these pages before. (Read “Two More Internet Stocks to Watch.”)
These valuations make it extremely risky to buy, as a change in the market perception and valuation could lead to a sell-off in the stock, as was the case for Twitter recently.
Now, if you are willing to assume the risk, there are some more attractive Chinese Internet and social media stocks that offer far better valuations than their American counterparts, but these China-based companies also come with much higher risk.
A look at the valuations of these Chinese stocks really doesn’t tell us much, but based purely on strict metrics and valuations, these Chinese stocks look pretty good—in fact, the prices of these Chinese stocks seem too good to believe. And therein lies the risk: due to the questionable reliability of the financial reporting, auditing, and statements in China, these Chinese stocks carry a lot of risk. Sometimes, it seems as though numbers have been made up to suck in investors and drive the share price higher.
The U.S. Securities and Exchange Commission (SEC), as I said in a previous commentary on China, has been trying to clean up the reporting requirements and offer some potential hope that the numbers being reported are valid. While it’s a good step forward, there’s still no guarantee that crooks will not escape the watch of the SEC.
I was reading how there may be 30 or so … Read More
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