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75 Percent of Internet Firms Will Disappear: Merrill Lynch
Three-fourths of the estimated 400 publicly traded Internet companies will disappear within five years without making a cent, a research report from Merrill Lynch says.
Merrill Lynch analyst Henry Blodget, in a research report issued last Thursday, said there remains "long-term upside potential for the leading Internet stocks, but we stress long term."
The report predicted "that 75 percent of the current crop of 400 or so public Internet companies will never make money and will disappear within five years - either through consolidation or failure."
It cited a "massive increase in competition across all Internet sectors" that will lead to a shakeout and consolidation in the industry.
"As the consolidation continues, we believe the Internet spoils will increasingly go to the few, not the many."
The report said Internet infrastructure and business-to-business firms appear to have the best growth prospects, but cautioned against investment in Internet retailers.
In the retail sector, "we would increasingly avoid the stocks of any companies that are losing market share and need additional funding to achieve profitability," the report said. "The Internet tide is not rising fast enough to lift all boats anymore."
Blodget wrote that the consolidation in any new industry is normal, noting "many turtles hatch, few make it to the sea."
But he said the sector remains highly volatile and that pure Internet stocks should be considered "unsuitable investments for investors with average risk tolerance."
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