Mediaboss Marketing

By Bobby Fisher - March 5, 2012 | Tickers: DANG, GOOG, GRPN, YHOO, YOKU | 0 Comments

Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

If weve learned one thing from the dot-com bubble, it is that weve really learned very little. Sentiment, rumor, and in general, hype still tends to carry greater influence than cold hard facts, financial results, or even profits. When companies create their revenue through the internet or promise to start creating revenues somewhere in the future, the market sometimes regards this as a mystical process that does not follow the same laws the market normally adheres to. Currently we have a number of stocks that are overinflated by hype, but a correction is sure to follow just as a bubble will always burst.

Not that long ago,Yahoo! Inc. (NASDAQ: YHOO)was the leader in two markets, but it has slipped into third spot behind Google (NASDAQ: GOOG) and Facebook in the display ads market, and as a search engine, it barely commands 6% of the market. Its market share in display and search advertising is set to slip further in coming years as Googles dominance grows.

As though that isnt bad enough, its investment in Alibaba.com, contributing more than 40% in value to the Yahoo! share price, is not being handled well by chief financial officer Tim Morse. Morse has been overcome by vagueness when speaking about issues surrounding its holdings in the Asian company. I expect more bad news from Yahoo! as it struggles to sell its Asian assets and its stock is sure to bear the brunt, causing longsuffering shareholders to wonder whether Scott Thompson will be another name in a succession of short lived CEOs.

The Chinese internet television company Youku, Inc. (NYSE: YOKU) is the closest equivalent to a Chinese Youtube, but it also includes professional productions like serial television shows, movies, variety shows, sporting events, and music videos. The other common denominator between the companies is their lack of profits. This has not deterred Youku in any way from trading with a market capitalization of $2.26 billion. Despite the share price falling from the heady highs of $69.95 in April of last year, the share price is still overvalued at around $22.

Looking at Youkus figures, there is hardly a number that isnt in the red. It starts out with a gross margin of 24.8% in the black, but this quickly runs into trouble with a net profit margin of -0.22% and earnings before interest, taxes, and depreciation margin is -18%. Clearly it is only a matter of time before this overvalued stock will get its just deserved correction from the market.

Another copycat of a U.S. model, E-Commerce China Dangdang Inc.(NYSE: DANG) tries to replicate in China exactly what Amazon.comhas done so successfully in the U.S. and in the rest of the world. From a business model standpoint you must say that this has been proven to work.

Dangdangs results arent backing this up though. Its latest set of results has shown growth in sales, but theres an ever-increasing loss per share as its margins continue heading in the wrong direction. In the last quarter its operating margin has increased to -12.1%.

Dangdangs problems originate from being the third biggest player in the online retail market in China behind Yahoo!s Alibaba.com which owns 49% of the market and 360buy.com with 18% market share. Dangdangs margins will only be squeezed further by price pressure and increasing marketing costs to compete against the two bigger players. This battle is an exercise in futility.

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Are These Internet Stocks Overhyped?