Archive notice: This article was originally published on October 18, 2007. Links and embedded videos are preserved as part of the historical record.
“What we are seeing now is certainly comparable to the situation in the years 2000 and 2001,” Erste Bank analyst Hans Engel warns in a conversation with pressetext. For the analyst, the investors’ buying frenzy is “following the trend”. The valuations would often lack any rationality on an economic basis, says Engel. The social-networking platform Facebook, in which software giant Microsoft has meanwhile also shown interest, is valued by investors at 15 billion dollars. That is half the value Yahoo puts in the balance – with 38 times as many employees and 32 times as much revenue. The valuation of Google, whose share exceeded the 600-dollar mark last week, is similarly difficult to explain. This makes the Internet giant worth more than IBM. Yet the technology group generates eight times as much revenue.
“The investors are participating more in the share price than in the company,” analyst Engel tells pressetext. Investing in a growth company naturally includes a good portion of risk, since the investor is betting that the company will grow. “At present, however, Google and Co. are buying additional revenue at any price,” says Engel. Depending on their attitude, US industry observers describe the current scenario as a return to madness or as a rational approach in view of the limitless possibilities offered by the Internet. The industry has returned to the mistakes of the turn of the millennium, says Piper Jaffray analyst Aaron Kessler in the NYT. “The Internet companies are buying customers instead of revenue and profitability.”
eBay, however, had to accept its first severe setback and admit that it had put significantly too much on the table for the popular VoIP provider Skype when it acquired it in 2005. Profitability at Google could also suffer in view of the acquisitions. “Corrections will come in the next two or three quarters,” Engel says with conviction. Then a mass flight of investors from the segment would begin.
