Internet companies are consistently viewed as hot stocks mainly due to the hyper growth trajectories of select companies that have been very disruptive. They have altered the way we look for information and communicate with users around the world. As is often the case, power is very concentrated in the hands of a few companies, and over time, these companies will become even more influential and earn outsized returns.
Advertisers are increasingly shifting towards online from traditional outlets; users are increasingly adopting mobile based devices to access the Internet and other digital media content. With faster internet speeds right around the corner (think Google Fiber), and the sector will only increase in prominence down the road.
Key Investment Themes In the Internet Space:
1. Video Streaming Companies Will Become Major Entertainment Outlets
Due to secular changes in the industry, online video streaming companies will be major beneficiaries at the expense of Cable TV. The rapid adoption of internet-enabled devices will contribute to a more fragmented digital media consumption patterns.
“Over the top” services like Netflix, Inc. (NASDAQ: NFLX), Amazon, and Hulu will do very well. As many of the subscribers of these companies are a lot more likely to cut or even not possess a cable subscription. Netflix, Inc. (NASDAQ:NFLX), Amazon and Hulu are now producing their own original content shows as well, which differentiates their service offering.
2. eCommerce to Play an Even Bigger Role
Consumers are increasingly becoming more and more comfortable shopping online. This trend has started to proliferate not only in developed markets, but also in developing countries as well. Major eCommerce companies like Amazon, eBay Inc (NASDAQ: EBAY) Alibaba group should do very well, as they continue to gain market share at the expense of brick-and-mortar companies like Best Buy and Barnes & Noble.
3. Mobile Devices Are Overshadowing PCs
Firms with solid positions in mobile will be in pole position, as consumer’s internet consumption drastically shifts from the Desktop to Mobile. Smartphone sales led by Samsung Electronics Co., Ltd. (KRX:005935) and Apple Inc. (NASDAQ: AAPL) have already overtaken PC sales. And tablets sales are widely expected to follow by mid-2013, with the iPad and the Kindle Fire leading the way. In addition, Facebook reported that for the first time Daily Users on Mobile exceeded Daily Desktop users.
As a result, these hardware companies are constantly improving their online content ecosystem with newer content to stay ahead of the competition.
4. Consumer Review Platforms to Gain Prominence
The circulation of most newspaper and other print information outlets like magazines and yellow-pages are on the decline, and paves the way for consumer review platforms to earn more revenues. Consumer review sites like Yelp and travel information platform, TripAdvisor along with medical information platform, WebMD Health Corp. (NASDAQ:WBMD) are all seeing large increases in the number of visitors.
5. Increased Pace of Innovation
Higher R&D budgets and more experiments will pave the way for newer internet based products and services that will be rolled out in the near future. Newer companies and startups with more disruptive products and services will emerge and also aid substantially on added innovation.