The bubble is not about to burst on Internet stocks, two influential Internet analysts told institutional investors on Monday.
"Internet stocks are tired but the economic shift is accelerating. Don't give up!" said Keith Benjamin, analyst at BancBoston Robertson Stephens. Benjamin and Lauren Levitan, senior analysts who presented at the investment bank's technology week, spelled out why the Internet business model will be a lucrative one, how it's changing, and who will be the winners in the near future.
In the beginning, "we thought the Internet would be more like a form of media, like TV," Benjamin said. "But the guts of the Internet is that it's become a communication vehicle."
Making money on the Internet is "much more about who's got the connection to you than who's got the best content," he said.
Benjamin maintained that the sky-high stocks of Internet companies that paid off so big last year -- and were making so many nervous now -- are, in fact, justified.
"Companies will grow into big valuations by using inflated currency for acquisitions ... and attracting media partners," he said.
The "best strategy for companies now is not to buy," but to get acquired. Benjamin pointed to the latest monster merger that has the tech world buzzing -- the marriage between Lycos (LCOS), USA Networks (USAI), and Ticketmaster Online-CitySearch (TMCS). Lycos is in the process of buying Wired News.
These "monsters," he said have "the highest probability of growth and profitability." America Online and Amazon.com also would fit in this category.
Some of the "next monsters" he predicted include Digital River, CNET, and the proposed combination of At Home and Excite.
Benjamin and colleague Levitan claimed that the Internet companies that will do best will pay a lot of attention to e-commerce -- in particular, "e-tailing," a term they used to describe the concept of successful retailing online.
The e-tailers who win will be those that get online first, who emphasize the traditional skills of retailing, and who already have direct delivery capabilities, especially catalog companies like Victoria's Secret and Land's End.
Addressing the ongoing question of whether Internet companies will ever be able to show a profit, Levitan spelled out her game plan for such a goal: Volume is key to creating profits, and consolidation can help.
