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".
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.
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.
The Economy Contents