Room to grow
Internet potential highest overseasAt the end of July, there were 785 million Internet users worldwide, just 11% of the population, according to JMP Securities analyst William Morrison, and that spells growth potential.
He says worldwide Internet usage is growing 9% annually while time online is growing 10%. Those numbers here in the U.S. are just 4% and 3%, respectively.
Therefore, he recommends investing in Internet companies with international exposure, particularly Asia, China and India.
Google fits the bill quite nicely, and the analyst rates its shares "market outperform." Of the seven companies he discusses in a lengthy report this week, only WebMD scores higher, with a "strong buy" recommendation.
Google boasts 552 million users, 22% of whom are in the U.S. On the video front, YouTube in July accounted for 28% of the time spent on Google sites and 35% of its users. International accounts for nearly 80% of YouTube's usage.
Video is a double-edged sword in terms of the Internet as a whole. While video boosts the time spent online, it has the opposite effect on page views, since users can spend several minutes viewing a video that counts for just a single page view. This, Morrison says, will cause changes in the way online advertising is priced.
"We have significant concerns about the disruption that this type of change could have on the broader display ad market over the next few years," the analyst says.
Also feeding Morrison's bullish view of Google is its Orkut social networking asset. While he acknowledges that it "is no Facebook or MySpace," he also says that it dominates in key markets like India and Brazil. Orkut had 25 million users worldwide in July, up 54% in the past 12 months.
Morrison also rates TheStreet.com and Monster Worldwide as "market outperform." He calls Yahoo and The Knot "market perform" and CNET a "market underperform."
The analyst worries that Yahoo might be feeding users too many ads. And he writes of CNET that: "While we believe the future for technology and gaming product reviews is bright, we remain concerned that CNET is likely to see increasing competition from the blogs and niche content sites."
One reason he's bullish on TheStreet.com is that it grew its user base by 47% to 2.3 million this July over last July. Not including its StockPickr.com acquisition, time spent on the site grew an astonishing 163%.