Spending time on the internet has become one of people’s favorite activities in the United States. It’s becoming almost as popular as watching television.
In total, people spend three hours and six minutes online per day, which grew from two hours, and thirty-four minutes in the year ago period. Comparatively speaking, the average person spends five hours in front of a television. So I guess we know where 8 hours of our day goes.
That being the case, capitalizing on the growing usage of the internet couldn’t be more imperative. Social networking has become the most dominant activity on the internet at 37 minutes. The other opportunities include online video at 24 minutes, and search at 22 minutes.
With the average person spending more time on the internet, we can look to three sources for making money as investors: social networking, search, and video.
LinkedIn Corp (NYSE:LNKD) may have some significant potential as a social network. It is becoming increasingly important for people to create work profiles on a social network. LinkedIn Corp (NYSE:LNKD) provides resources and tools for the average consultant and corporate head hunter. In this day and age it is more important than ever to poach serious talent, find people to close business deals, and to advertise products.
LinkedIn Corp (NYSE:LNKD) has been able to experience significant growth in all of its business segments. Analysts on a consensus basis anticipate that the company will grow earnings by 64% in 2013 and 44.50% in 2014. Forecasts indicate that the company will double earnings in under two years, which is what’s driving the 560 price-to-earnings multiple. The multiple is likely to fall as investors pay less of a premium on growth as the rate of growth declines.
Google Inc (NASDAQ:GOOG) is way ahead of the competition in terms of search advertising. In the first quarter the company reported 18% growth in search and display advertising. The company has a near dominant position in terms of web browser usage globally (Chrome and Mozilla Firefox combined). Because of this, Google Inc (NASDAQ:GOOG) has seen upper-teen-growth in its Google Inc (NASDAQ:GOOG) AdWord and AdSense business.
The growth in its ad-business will be driven by international expansion. Microsoft Corporation (NASDAQ:MSFT) estimates that the number of internet users will grow to 4 billion. Another growth catalyst is the year-over-year increases in internet usage by the average person. With the total addressable market improving, and the average audience metric likely to improve, Google Inc (NASDAQ:GOOG)’s search business will remain a cash cow for the foreseeable future.
Analysts are willing to estimate that Google Inc (NASDAQ:GOOG)’s sales will grow by 41.2% in the 2013 fiscal year. Following that the company should be able to grow sales by 16.9%. The company trades at a 26.9 earnings multiple, which is fairly high, but given enough time the multiple is likely to be justified because of its rapidly growing Android business.
Go with online video
Netflix, Inc. (NASDAQ:NFLX) seems to be on the right track with its business. Again, while it is true that content costs are on the rise, the company has been able to tie up some long-term contracts with Walt Disney and DreamWorks Animation. It is highly probable that Netflix, Inc. (NASDAQ:NFLX)’s content collection will remain superior to its competitors.