Bank of America Merrill Lynch has just released a report outlining the top issues driving investors returns at the world’s largest ecommerce businesses…
“Eleven top themes that will shape the U.S. Internet and drive sector returns in 2011
- US economic recovery – Some economic improvement in 2011 was already discounted in Internet stocks in 4Q, in our view. Need employment outlook to improve by 2H’11 for multiple expansion from here (whole Internet group).
- Social platform growth – Social media is now 14% of US Internet time, and FB drives 8% of traffic (+ for Facebook, opportunity for RLOC; – for GOOG, YHOO)
- Mobile usage explosion – Google well positioned, eCommerce to also benefit (most + for GOOG, OPEN; + for AMZN, EBAY; possible – for YHOO)
- Google disintermediation – eCommerce beware, will Google remember who supplies content and pays the ad bills? (+ for GOOG; – for EBAY, EXPE, QNST).
- Investment spending – Companies see big opportunities, possible 1H’11 margin pressure (- for AMZN, EBAY, EXPE, GOOG; PCLN and YHOO are OK)
- IPOs – New, share-gaining, options coming for investors, SEC may make staying private more difficult (potential – for group as new share gainers emerge)
- Acquisitions – Internet is a cash cow, good be a seller (+ for private companies, we liked PCLN’s purchase of TravelJigsaw, we highlight why NFLX, GSIC and DRIV could be interesting to acquirers)
- Local and deal site momentum – Local more rapidly moving Online as deal sites hit home with local merchants (+ for Groupon, LivingSocial, Gilt and OPEN; GOOG and RLOC could see more ad dollars, but also new competition)
- Cloud – Investors need themes, cloud could be the biggest (+ for AMZN, GOOG)
- IP to the TV – Better Internet TV experiences will eventually emerge and MSOs can’t stop it (+ for group, including NFLX, GOOG, Hulu and possibly AMZN)
- Europe Economy and Currency – Austerity measures could crimp growth in Europe vs US, and the Euro/US$ between $1.30 – 1.35 is a modest neg. for 4Q (highest Intl exposure for PCLN, EBAY, GOOG, AMZN, lowest for NFLX, GSIC)”
While this is an interesting analysis of the ecommerce sector, it could also be taken as a pretty good check list of issues to think about when it comes to almost any rapidly emerging technology sector. The same drivers, almost without exception, are key in other sectors including mobile, security, enterprise software, SaaS, web, mobile gaming etc etc.
I think we can sum up the prospects in all of these sectors pretty simply.
The world is changing rapidly and the rise of social media, mobile and the cloud, along with the need to reinvent business models in existing organisations is creating unprecedented opportunities for entrepreneurs. The only thing that can stop some of these ideas being successful in the short term are the macro economic factors that the global economy is facing. If these stay favourable enough to entrepreneurs in 2011, this will drive investor confidence and thus M&A, IPO and investment activity in short order. If they don’t, it will take a bit more time to take over the world.
Have a fantastic 2011.