There has been a recent flurry of activity in the Internet world in the Republic as a number of Internet service providers (ISPs) have unveiled packages offering free access to the Internet.
Most of the incumbent companies charge monthly fees for their services, but the advent of free ISPs reflects a pattern that has recently become established in Britain.
The move to free Internet access in Britain was led by the retailing group, Dixons, which only eight months ago launched its Freeserve service which proved to be a great success. It already has more than one million customers, putting it well ahead of rivals such as America Online (AOL). Not surprisingly, Dixons' share price has been one of the star performers in an otherwise lacklustre retailing sector.
Dixons' total market capitalisation is more than £5 billion sterling (€7.7 billion) and analysts estimate that its Freeserve business could be worth as much as £2 billion. Dixons has decided to separately float its Freeserve operation to take advantage of the skyhigh valuations afforded these companies by the stock market.
European equity markets, including the Republic's, have virtually no Internet stocks. In contrast the US equity market has witnessed a steady stream of IPO's in recent years with a dot.com appearing after the company name. The share prices of many of these Internet companies soared on the first day's trading, often doubling or trebling in price.
The apparently huge gains in these Internet stocks have been fuelled by the arrival of cheap Internet trading delivered by specialist brokers. This has encouraged many private investors in the US to actively trade - often on a daily basis.
Most investors on this side of the Atlantic have simply stood by and watched in disbelief as companies with no history and no profits soared in value. At its peak price, AOL, the largest Internet stock had a market capitalisation of $90 billion (€86 billion) on a price earnings (p/e) ratio of 250 compared with a market capitalisation of only $65 billion for the vast Disney empire.
Another familiar Internet company, Yahoo was on a peak p/e of 350. For many other stocks in the US Internet universe, price earning's cannot even be calculated because most of these companies are still a long way away from making profits.
In recent weeks reality seems to have finally begun to bite and many Internet share prices have fallen by more than 50 per cent with some analysts predicting further falls.
The volatility of these share prices reflects that e-commerce is still in its infancy although it will undoubtedly play a large and growing role in how business is conducted in the future. At the early stages of a new technology, many of the original companies fail to survive over the long haul suggesting that many of the current Internet quoted companies will not be around in five years time.
An analogy can be drawn with the personal computer industry in the early 1980s when PC stocks boomed. However, many of the original companies such as Commodore and Wang are no longer in existence.
For most investors, Internet stocks still represent too much risk, but if history is any guide, it will probably pay to wait for the ecommerce revolution to settle down before investing in these new businesses.
