2007: The Internet's Worst Year Ever (GOOG)(YHOO)(EBAY)(AMZN)

Google (GOOG) joined the list of big online companies that disappointed just about everyone with its earnings. Revenue rose 51 percent to $4.827 billion. That just wasn’t enough.

Google’s share will probably trade around $500 on the news. That is down from a peak of $747. About $80 billion in market cap has been swept away.

Wall St. would say that 2000 was the worst year for internet stocks. Many lost 90% of their value. Some went out of business. The Nasdaq fell by half. But, it is important to remember that most of the internet companies which got public in 1998, 1999, and early 2000 should never have made it through the IPO process. Many had no revenue and substantial losses. They had high "burn rates". Once the IPO cash was gone, so were the businesses.

In 2007, things are very different. The market is dealing with companies which have been around for over a decade. They have generated substantial profits. The largest ones, Google, Yahoo! (YHOO), Ebay (EBAY), and Amazon (AMZN) are large operations. So are the internet arms of News Corp (NWS), Time Warner (TWX), and Microsoft (MSFT).

Since the beginning of the year, Yahoo!, Google, Ebay, and Amazon have all lost close to 20% of their value–in a month. Even the first month of 2000 was not that bad.

The market has decided to begin what could be a long, hard devaluation of internet companies. The reason is fairly simple. They are not growing at 2x year-over-year any more. Even the expectations for Google are at sub-50% growth. A recession could undercut that figure, and the law of large numbers will bring that number down every year for the foreseeable future.

The internet industry is not dying. But, it has become a normal industry now. It will trade based on more normal "metrics" and more normal valuations. None of that is good news for Google shareholders.

Douglas A. McIntyre