Analysis of 1999 Internet Stock Values

Suppose you had $200 billion to spend buying companies. For this amount, you could buy all the shares of three of the most popular Internet stocks (as of April 23, 1999):

• AOL

• Yahoo

• eBay

or,

For the same $200 billion you could buy all the shares of: Boeing, Eastman Kodak, Caterpillar, Nike, Sears, Alcoa, Aetna, Marriott, American Airlines, Barnes and Noble, and Kmart.

In addition, you would still have over $17 billion to put in the bank.

With these "traditional" companies, you have over 85 times as much revenue, and over 78 times as much net income as the three Internet companies above.

It would take 24 years of 20 percent revenue growth for Internet companies to catch up, if the traditional companies do not grow at all. If the traditional companies grow at just 6 percent per year, it would take more than 36 years of 20 percent per annum revenue growth for the Internet companies to catch up with the traditional companies. By then the $17 billion you put in the bank say at 5 percent will have grown to over $98 billion, so the Internet stocks would still have some catching up to do!

Furthermore, in order for the "catch up" to occur:

1. America Online, assuming current user fees, would have to have some 8.4 billion subscribers (currently 100 million);

2. Yahoo would have to have $17 billion in advertising revenue (up from their current $120 million); and

3. eBay would have to be generating $4 billion in revenues instead of their current $47 million.

Remember that this growth is necessary for the Internet companies to catch up to the level of business that the traditional companies already have!

Thought it was an interesting way to look at things...