Whether the result of savvy investing or short-term memory loss, Internet stocks appear to be climbing out of the rubble of the dotcom fallout. For the first half of 2003, companies large and small experienced a burst of investor interest that lifted many shares to their first real gains in three years.
Are dotcoms on the comeback trail? Depends whom you ask. The more pessimistic view sees the share increases as an intermittent stock market blip or the impact of short sellers waiting for the stocks to drop again. "Another minibubble," says Peter Doyle, chief investment strategist for Kinetics Asset Management Inc. in White Plains, New York, and manager of the Kinetics Internet Fund, an Internet-themed mutual fund. "It appears the lessons of the last craze weren't learned by the typical investor."
The more optimistic view suggests that investors are rewarding the potential of the dotcom survivors, now that the wheat has separated from the chaff. "People recognize these aren't dotcoms as much as they are service companies with durable customer relationships," says Barry Randall, portfolio manager of the First American Technology Fund, owned by US Bank in Minneapolis. Indeed, a sales boom at leading Internet companies such as eBay and Amazon put the companies well past struggling blue chip stocks earlier this year.
One of the beneficiaries of rising investor interest is At Road Inc., a mobile resource management provider in Fremont, California. The company, which helps businesses manage field staff using Internet and wireless technologies, saw its stock rise from around $2 a share in 2001 to about $10 as of June 2003. An anticipated 50 percent jump in sales this year and its first break-even quarter helped raise the company's profile. But Krish Panu, At Road's chair, CEO and founder, says the numbers don't tell the whole story. "Investors are paying more attention to the fundamentals: strong balance sheets and sustainable business models that solve a complex business or consumer need," Panu says.
Profitability remains the biggest draw. "In a fixed-cost business, once a company breaks even, every new customer falls right to the bottom line," Doyle says. While that still doesn't justify today's high prices, he adds, "that value can be justified in three to five years."