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Friday, January 22, 1999 Published at 22:56 GMT


Business: The Economy

What goes up...

Shares in Excite soared when a deal was reached with @Home

BBC economics correspondent Ed Crooks looks at the meteoric rise in the value of US Internet-related shares and asks if the trend can last.

Chairman of the US Federal Reserve bank Alan Greenspan has hinted that he feels the same way as he did in December 1996 when he said he thought the stock market was displaying "irrational exuberance".


[ image: Ed Crooks:
Ed Crooks: "It's hard not to feel things have gone way beyond reason"
Since those remarks, share prices have risen more than 40%. He must now think that that investors have gone stark raving mad!

Nowhere is the madness more obvious than in the shares of companies that are in some way connected with the Internet. The figures are breathtaking.

Yahoo, for example, the company that owns the popular Internet directory, has seen its shares rise in the past year from less than $30 to almost $450. They have since fallen - but even now, if you put £1,000 into Yahoo early last year, you would have around £12,000 today. The stock market now values Yahoo more highly than such industrial giants as Boeing or Xerox.


Ed Crooks reports from Wall Street for BBC Radio 4's 'The World Tonight' programme
And Yahoo's growth is relatively sluggish. Shares in the Internet auction house Ebay rose by 1,500% in the four months after its flotation last September. If you had sold your house and put £100,000 in that, you'd be a millionaire by now.

Other Internet companies have seen similar gains. The on-line bookseller Amazon.com is now valued on the stock market at approximately £18bn - about three times as much as ICI. And this for a company which - like many Internet companies today - has NEVER made a profit.

Amazon.com may be selling a lot of books - a billion dollars' worth in the past year - but it is also losing a lot of money.

A sure thing?

The sceptics argue that it may never make any money in the future. It is the nature of business on the Internet that it is extremely easy to get into, as Amazon.com itself has proved. All you need is some distribution, the security to reassure your customers they won't be ripped off, and a brand name. Almost anyone could do it. If Amazon.com looks like starting to make serious money, then someone else WILL do it.

Internet share fever reached epidemic proportions last week. Yahoo and Amazon.com have risen more than 30% already this year.

Turnover in these shares has been huge, and prices have been amazingly volatile - rising and falling 10-20% within the space of a few hours. It's all a feature of a brand-new industry that is still evolving.

The Internet is an incredibly exciting, fast-moving world with enormous potential. But it is hard not to feel that things have now gone way, way beyond reason.

It is likely that SOME Internet companies will turn into massive successes and justify all the money that's been put into them. It is very unlikely that they will ALL be that successful. And if you back the wrong horses at the wrong prices, you are sure to end up losing your shirt.



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In this section

Inquiry into energy provider loyalty

Brown considers IMF job

Chinese imports boost US trade gap

No longer Liffe as we know it

The growing threat of internet fraud

House passes US budget

Online share dealing triples

Rate fears as sales soar

Brown's bulging war-chest

Oil reaches nine-year high

UK unemployment falls again

Trade talks deadlocked

US inflation still subdued

Insolvent firms to get breathing space

Bank considered bigger rate rise

UK pay rising 'too fast'

Utilities face tough regulation

CBI's new chief named

US stocks hit highs after rate rise

US Fed raises rates

UK inflation creeps up

Row over the national shopping basket

Military airspace to be cut

TUC warns against following US

World growth accelerates

Union merger put in doubt

Japan's tentative economic recovery

EU fraud costs millions

CBI choice 'could wreck industrial relations'

WTO hails China deal

US business eyes Chinese market

Red tape task force

Websites and widgets

Guru predicts web surge

Malaysia's economy: The Sinatra Principle

Shell secures Iranian oil deal

Irish boom draws the Welsh

China deal to boost economy

US dream scenario continues

Japan's billion dollar spending spree