Local Internet Stocks On The Rise

It is an old story in the US. Internet-related stocks have been the darlings of the market for more than a couple of years now. And the way the market values these stocks defy traditional ways of recognizing value. Amazon dot com, the on-line bookseller, has made billions for its founder and early stockholders in the stock market. But the company itself still has to earn its first dollar in net income.

The trend has come to Asia. Perhaps the regional financial crisis delayed its coming, but now it is here. As expected, Tokyo, Hong Kong and Singapore will see this trend in a big way. The smaller markets will try and keep up.

The Washington Post reported that "last August two women, frustrated with their jobs at large Japanese fashion magazines, posted a five-sentence query about their idea for a World Wide Web site for women on an e-mail list run by a Tokyo forum for high-tech entrepreneurs.

"The next day, the phone rang off the hook. Within a week, they had $100,000 in seed money and the promise of back-office help from a team of top-notch computer experts in California. Their site, CafeGlobe.com, debuted this month.

"'We had investors almost before we had a business proposal,' Aoki said. The pace of Japan's venture-capital scene, she says, has become 'a bit hysterical.'"

Here in Manila, stocks with even the slightest links to the Internet and related technology have started to get recognized. In fact, a number of dead mining companies that had long ceased to be actively traded in the market suddenly came back to life. They are now being touted as born again Internet concerns and the investing public seems to be buying.

As with anything in our local stock market, investors ought to be very careful with this development. How much of this is hype and how much of this is hope? My guess is, an awful lot of both. Throw in boredom. With no significant news to move the market, anything with even the slightest hint of being plausible is good enough.

I suppose the basic question is, how can a local Internet concern make money? For starters, the Internet is largely free. You pay for Internet access (even this you can get for free in the US) and some sites may require a subscription. But if all you want to do is get an e-mail account and read the news, that's free.

So they talk of e-commerce or sites where you can buy stuff just by clicking your mouse and typing in your credit card number. That may be enjoying a momentum of growth in the US, but I doubt if more than a handful of local Internet users are confident enough about Internet security to use it to buy stuff.

Eventually, e-commerce will be a profitable way of doing business in this country, but it will take time. I understand that there are just about 250,000 local users of the Internet now. That number does not give it that much buying power, given the highly segmented nature of the medium. Nor are there enough things of interest to local buyers.

In fact, local web sites get most of their visitors from Pinoys abroad. A big number of the e-mail I get reacting to this column (from Philstar.com) comes from overseas. Jake Maderazo of ABS-CBN News told me that 79.62 per cent of the visitors to the web site he runs (ABS-CBNNews.com) comes from abroad.

Numbers drive advertising, an income stream for Internet web sites. Advertising offers great potential, but for now, the number of eyeballs here is still not quite there. Besides, the "mall culture" is still too ingrained in the middle and lower classes. Shopping on a weekend is a family ritual that comes after attending religious services.

Then there are these born again Internet issues like SSO which talk of high speed broadband Internet access but it does not have the extensive wires network of the telecoms and cable companies. Will it use satellite technology perhaps? If they will buy the connection from the existing telecoms companies, it would mean buying from their competitors. Or are they talking of developing the software that will make it easy for businesses to exploit the Internet?

They are not disclosing enough of their plans, assuming they have some concrete ideas of what they want to do, other than play with the price of their issue. There is danger that local investors in the market will just be fooled into buying into something that is nothing more than a seemingly more decent BW play. Local stock analysts may also not be in a position to fully evaluate the value of these backdoor listings. The old parameters don't work.

But we have been bitten by the bug. From the perspective of the local stock market, it seems Internet is the new flavor of the month. In the past, dead mining companies were being used for the backdoor listing of property and more recently, of gaming firms. Now it is Internet kuno.

The task of the investor, specially for the one who does not have all that much to burn if he is mistaken, is to separate the pretenders from those with some basis. It is interesting and potentially very profitable, if you pick the good ones who actually are in a position to cash in on this international trend.

So, what's the story? The story's still evolving. In the meantime, be alert, keep your ears to the ground. Even in the US, they are starting to have a taste of reality with the so-called tech stocks.

Non-fixed income people who are supposed to register for VAT this year are confused over whether the law is being implemented or not. On the one hand, Tommy Toledo who works with the Senate Ways and Means Committee told me a law has been passed by both houses postponing the implementation set to begin this year. On the other hand, local BIR officials say the old law is still in full force until President Estrada signs the new law.

But the BIR has also not issued clear implementing rules to make the registration and filing procedures easy for the taxpayer. What makes matters even more confusing is a press release from Congressional sources that reported the passage of the new law and therefore, taxpayers need not worry about VAT this year. This state of limbo can be exploited by rotten eggs to harass taxpayers.

Daki Fonacier should get his information division to clarify things right away.

US-based Ernie Espiritu e-mailed me this one.

A Brit, a Frenchman and a Filipino are viewing a painting of Adam and Eve frolicking in the Garden of Eden.

"Look at their reserve, their calm," muses the Brit. "They must be British."

"Nonsense," the Frenchman disagrees. "They're naked, and so beautiful. Clearly, they are French."

"No clothes, no shelter," the Filipino points out, "they have only an apple to eat, and they're being told this is paradise. They are Filipinos."

(Boo Chanco's e-mail address is [email protected])