Sunday, February 12, 2006

Shouldn't that be Bubble 2.0 ?

The resurgence of exuberance in the net sector has reached mini-bubble levels, with Web 2.0 being used to describe the second-generation/mature companies and technologies. The 2.0 seems to be just an attempt to forget the ugly first episode!

A recent target of $2000 placed on Google is the best indicator of a top. Ebay's expensive purchase of Skype, as I noted here, was another indicator.

Barron's ran a bearish piece on Google today. My only complaint is that it wasn't bearing enough. With all the major internet players, Yahoo, Microsoft, Ebay, Interactive Corp, Amazon and Google, increasingly encroaching on each other's turf, and fighting for the same search-generated ad dollars, margins will be very slim.

There is no questioning the utility of various online services, but with the audience used to getting most of these for free, will there really be consistent and large growth in earnings ? The only way for these companies to make money is by resorting to serial secondary offerings at inflated prices, as long as they last. That doesn't help common shareholders, and won't keep the share prices levitated for too long.

Call me a heretic, but I will wait for a 90% discount to Google's current price!

Around the time Google founders interviewed with Playboy just before the public offering, I had posted recommending that Playboy (PLA) was the better buy. That recommendation still stands. Hugh Heffner has been regularly buying back shares, and a going-private transaction may be around the corner. Even if it doesn't go private, there is definitely growth now that Playboy is entering the Indian market, with (sigh!) adjustments for local cultural sentiments, and the Indonesian market, where opposition to the plan is growing (sigh again!).


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