When CERN released the World Wide Web in 1991, few thought it
would amount to much. In fact, noted Author and Astronomer Clifford
Stoll proclaimed in a
that it was just a passing fad and would never catch on.
That was just before tech giants such as
Oracle (Nasdaq: ORCL)
jumped 1,900% and
Cisco Systems (Nasdaq: CSCO)
skyrocketed 4,000% during the next five years.
Many investors were not fortunate enough to ride the tech boom
as high as we would have liked. I, for one, was only 24 when the
bubble burst in 2000.
Fortunately, the space is about to go through a major change
that could set off another boom for those able to get in front.
Dot-com is so 1990s
Starting March 23, the InternetCorporation for Assigned Names and
Numbers (ICANN)will increase the availibility of Web
addresses by assigning some 1,900 domain suffixes, the part of
a website address that ends in .com, .org or .net. The project has
been five years in the making, but this year looks like the
watershed moment for many of the companies that will benefit. An
additional 1,900 domain suffixes represents an increase of 8,600%
over the 22 currently in use.
And while the project may not bring tech the valuations seen in
the 1990s, it couldmean a surge inrevenue for some industries in
the sector. Specifically, companies in Web registry, search and
advertising stand to benefit.
Here are fourstocks I believe could reap the most
Verisign (Nasdaq: VRSN)
, which currently manages the .com and .net domains, may see some
increased competition, as other operators grab new domains and
users flock to them. Still, the company just signed a six-year
contract with the U.S. Department ofCommerce to run the main
database of domains, which basically amounts to six years of
Company management expects between 900,000 and 1.3 million net
additional addresses were added in the fourth quarter of last year.
Dot-com registrations have grown from about 20 million in 2001 to
105.9 million in November 2012, according to Verisign. That is an
annualized growth rate of 16.4% with little slowdown in sight and
with a government contract on the fees.
Google (Nasdaq: GOOG)
is sure to see an increase in search as Internet users wade through
the new maze of Web addresses. The $239-billion behemoth should
also see increased advertising as companies pay to highlight their
new addresses. The increase in search, not only from the new
websites, but also from the transformational change in mobility,
could benefit Google more than any other company.
The company has been able to sustain an 18%compound growth rate
in revenue during the past five years, even while making a jump
into new niches such as tablets and smartphones. Thestock is
trading for just 16.7 timesforward earnings , which is extremely
low, given its expected 13%earnings growth and anoperating margin
of 27% that's above 95% of peers in the industry.
Marchex Inc. (Nasdaq: MCHX)
ValueClick (Nasdaq: VCLK)
stand to ride thewave of higher online marketing spending as well.
Both companies operate in various fields of Internet advertising
and marketing for small businesses.
Marchex provides services and technologies that help advertisers
reach local consumers online, offline and through mobile devices.
The company's primary services include digital call-based
advertising, pay-per-click advertising and website traffic sources.
ValueClick offers digital marketing services and technology
infrastructure tools to help companies manage their online
advertising acrossmultiple channels.
Both companies are currently targets for short-sellers, making
the potential for a quick gain very plausible.Insiders own 17% of
Marchex and 5% of ValueClick, withinstitutional ownership of
ValueClick a surprisingly high 90% ofshares . Short interest in
both stocks is above 10%, so any positive news, which I think could
soon happen, would send the naysayers running for the exit. In
fact, there are currently more than two million Marchex shares
shorted, with an averagevolume of just 73,800 shares traded per
day. There is nowhere near enough liquidity in these shares to
unwind that kind of a position without pushing the price skyward
Risks to Consider:
The process of rolling out 1,900 new domain names will not
happen overnight. Investors may want to position for a quick pop in
sentiment for stocks in the space, then take some profits as
revenue catches up with valuation.
Action to Take -->
The expansion of domain names could change the way we surf the
Internet. Investors who missed the first great tech boom should
position their portfolio early for the changes coming this year.
Look to companies that will benefit from increased search and
advertising of the new Web environment.
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