Are dot-com stocks ready to party like it's 1999?
Many of them will, but the climate today is far more level-headed than during the Internet bubble days. The survivors are either profitable or have a clear path to profitability. The winners know how to draw a crowd and how to monetize effectively.
Yesterday, I reviewed a few of the retailers that I find appetizing in the year ahead, but now it's time to dig into the scintillating pool of promising Web stocks. We live in connected times, and that's not going to change, so we may as well unearth the best investing opportunities in this booming space.
Here are the ones that I'll be watching closely in 2008.
The Knot (Nasdaq: KNOT )
Through the first half of 2007, The Knot earned its wedding cake. Despite the higher tax bracket and a considerable secondary offering, the Web-based provider of wedding-day service leads and online bridal registries was able to keep pace with its growth.
Then the company unveiled a lackluster third-quarter showing last month. The Knot had demanded double-digit percentage increases out of its wedding-service sponsors for several years in a row, and the cockiness caught up with the company. So the top line grew nicely, but margins were stung.
In that sense, it's refreshing to know that The Knot's problems are model-based. The site continues to draw more than 3 million unique monthly visitors, many of them about to throw down some serious cash in planning a special wedding. The advertisers will still come around, because the model works and they need to reach that key audience.
Analysts expect earnings to climb 31% higher to $0.47 a share in 2008. It's priced at less than 30 times forward earnings, so there is plenty of upside here if the company mends its sponsored relationships.
Yahoo! (Nasdaq: YHOO )
Yes, that's right. Yahoo! has been stagnant over the years, but 2008 promises to be different. I'm approaching this one as a win-win scenario. The ideal situation would have the company finally living up to its traffic-magnet potential, with CEO Jerry Yang reaping the accolades. On the flip side, the company could falter yet again, but if Yang got the boot in that case, the search for a market-appeasing outsider could reinvigorate the shares.
See, Yahoo! isn't broken. It's just stuck, pulled off to the side of the road as everyone else is whizzing on by. Now that the Panama upgrade to its paid-search platform has been exposed as a dud, the company needs to flag down a passing motorist who has a pair of starter cables. I'll still give Yang another quarter or two to work his magic, but I know I'm not the only one puzzled over seeing a Web-traffic leader that can boast of juicy Asian investments and quality sites such as Flickr and Yahoo! Answers on the one hand, yet produce bland income statements on the other. Something's gotta give, and I say it's the layer of incompetent complacency that buckles first.
Travelzoo (Nasdaq: TZOO )
Things are never easy when you're misunderstood. And Travelzoo is misunderstood.
It's a publisher of travel deals, far removed from the more popular full-service portals such as Priceline (Nasdaq: PCLN ) and Expedia (Nasdaq: EXPE ) . Cynics believe that the company's "Top 20" weekly email product, which goes out to more than 11 million opt-in recipients, can be easily duplicated. Yet even Priceline has gone this route, with its PriceBreakers missives. Haven't heard of PriceBreakers? Exactly. Travelzoo has planted the flag firmly in this lucrative niche.
Did I say lucrative? OK, so the company has missed analyst estimates in each of the past four quarters. Overseas expansion has proved costly, especially since operating losses abroad can't offset gains here (leading to some outlandish tax rates). I can't make excuses for the company's most recent quarter, during which domestic operating profits fell, but plenty of the seeds Travelzoo planted in 2007 should sprout in 2008. Whether it comes in the form of successful stateside initiatives or vindication abroad, 2008 is Travelzoo's year for redemption. Scorched analysts see only modest bottom-line improvement in 2008, but picking winners is all about taking chances in spotting what others fail to see.
Internet Brands (Nasdaq: INET )
It's not exactly a busted IPO, though Internet Brands is trading just shy of last month's $8-per-share IPO price tag. More than just another Internet stock for the back burner, Internet Brands owns several high-traffic sites in areas including automotive (Autos.com and CarsDirect), travel (Cruisemates, VacationHomes.com), and real estate (Loan.com, RealEstateABC).
All told, Internet Brands attracted 26.7 million unique visitors in September. Content is king? Not this year. Plenty of eyeball magnets -- from Internet Brands to CNET (Nasdaq: CNET ) -- are trading in the single digits.
I'm looking for that situation to change next year. Even if Internet Brands' housing-based domains may take a bit longer than that to bounce back, the company as a whole is just begging to be appreciated. The IPO proved to be lousy timing, but now new investors can get in on the discounted pricing.
These are the companies I'll be watching in 2008, so stay tuned!