Internet shares are expected to outperform the overall share market in the near term, as rising Internet traffic pushes people towards spending more time and money on the Internet, according to experts.
According to data released by the Australian Bureau of Statistics last week, just under $143 billion worth of Internet orders were received by Australian businesses in 2009/10, up 15 per cent on the previous year.
Smallco Investment Manager co-founder Rob Hopkins said Internet companies were on a strong growth path as they were expected to reap a windfall from advertising and other revenue in the coming 12 months and further out.
"While the majority of the eyeballs have moved from print to online, a large part of the revenue is still in print. For example, in job ads, over 80 per cent of the volume and 75 per cent of job seeker preferences is online, but only 50 per cent of the revenue is online," Hopkins said.
"Over time, we would expect the revenue share to more closely follow volume and job seeker preferences. Consequently, we would expect a number of years of strong online revenue growth to continue in the jobs market. Similar situations exist in real estate and automotive."
That has meant Internet companies are commanding significant price premiums, well above that of other industrial stocks. Hopkins said he had price targets of $6 on Carsales.com over the next 12 months (it traded at $4.59 on 29 June), $13.60 on the operator of realestate.com.au, REA Group (recently traded at $11.60), and $8 on Seek (now around $6.20).
On the international horizon, money has flowed into technology and Internet shares recently. Business networking site LinkedIn listed on the New York Stock Exchange (NYSE) on 19 May, with its shares surging from an initial public offering price of US$45, valuing the company at US$4.3 billion, to as high as US$122 on the first day of trade.
China's answer to Facebook, Renren, also listed on the NYSE in May at US$14 a share, giving the company a market capitalisation of $5 billion. It was one of several Chinese Internet companies listing in the United States at a hefty premium.
Globally, as the economy recovers, businesses are starting to hire again, which is creating more need for technology and software services.
In China, the government was developing a national broadband network, which had enhanced the positive earnings outlook for technology and Internet stocks in that country, according to Harvest Global Investments, one of China's largest funds management companies.
Dmitry Solomakhin, portfolio manager at Fidelity Investments' Global Technology Fund, said investment opportunities were opening in China, where telecommunications operators had been building and improving infrastructure and capabilities recently, but there was an opportunity for software providers to develop and sell more sophisticated services and products.
Global technology shares had outperformed diversified international shares over the past three and five years, returning -0.5 per cent and -0.4 per cent respectively, compared to -5.9 per cent and -4.3 per cent over three and five years respectively for diversified international shares, according to Morningstar data.
