The Internet: The Fourth Necessity

November 19, 2010 at 1:32 am Leave a comment

The basic necessities for human life are food, water, shelter and most importantly…the internet. Imagine a world where you cannot: access your email; text your spouse or significant other in the same house; Twitter the contents of your lunch; or Facebook a YouTube video of a dancing meringue dog (see video).  Scary thought.

Many people take the internet for granted, just like the air we breathe, but how important a role does the internet play in people’s lives? Mary Meeker, internet analyst from Morgan Stanley, takes a look at this question in a recently released presentation she completed. Earlier in the decade, Meeker was raked over the coals during the deflation of the internet bubble, but in many respects she has been redeemed in the subsequent years as hundreds of millions of people continue to plug into the internet.

According to the broad base of expert strategists, we apparently are living in an overvalued, “New Normal ” market with subdued growth for as far as the eye can see (check out New Abnormal). In the mean time Meeker shows how the top 15 global internet franchises have nearly quadrupled revenue from $33 billion in 2004 to $126 billion today. Perhaps abnormally outsized opportunities in the corporate internet universe will be the “New Normal” over the coming years?

Internet Ubiquity

Source: Morgan Stanley

How ubiquitous is the internet becoming? Last year 1.8 billion people accessed this invisible global flattening medium we like to call the internet, and users spent 18.8 trillion minutes online, up +21% over the previous year. Many people are very familiar with the home-bred internet franchises of Facebook (620 million users), Google (940 million users), and Apple (120 million internet device users), but many investors under-appreciate the global scale of international internet franchises like Tencent (637 million users…more than Facebook by the way), Baidu ($40 billion market value), or Alibaba.com ($10 billion market value).

Source: Morgan Stanley

Mobile ubiquity is on the rise too. Connecting through a desktop or laptop is not enough these days, so internet addicts are increasingly attaching a mobile phone umbilical cord for such useful bathroom applications such as this (click here). Lugging a laptop around all over the place can be an inconvenience. So primal is the mobile instinct among internet users, Morgan Stanley expects mobile phone shipments to surpass PC and laptop shipments over the next 24 months.

What’s Next?

The party is just getting started. If you just consider eCommerce (purchases online), which only accounts for 4% of total commerce conducted in the U.S., then there is a lot of headroom for internet purchases to expand. The incredible potential rings true especially if you contemplate old traditional catalog, which peaked at more than 10% of overall commerce according to some industry executives. The rich feature functionality afforded to users through the internet, coupled with the increased convenience of mobility, augur well for future ecommerce sales growth.

The internet has been around for 15 years, but in the whole scheme of things this transformative medium is just a baby – especially if you consider the amount of time it took other revolutions like electricity, the rail network, and automobile proliferation to spread.  That is why it is not too late to join the internet party.  Food, water, and shelter are human necessities of life, just like exposure to the internet revolution is a necessity for your investment portfolio.

Read the Morgan Stanley Internet Presentation by Mary Meeker

Wade W. Slome, CFA, CFP® 

Plan. Invest. Prosper. 

http://www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, AAPL and GOOG, but at the time of publishing SCM had no direct position in MS, BIDU, Tencent, Alibaba.com, Facebook, Twitter, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

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