By Chris Stone Contact Chris
It's easy to remember a time when investors' expectations about the internet were extremely overblown. The late 90s were the age of irrational exuberance, according to former Fed Chairman Alan Greenspan, and much of the exuberance was due to the lightning-fast expansion of commerce on the internet. Internet stocks were bid up in a frenzy despite their untested business models (and earnings expectations), which were essentially made up of hopes and dreams. Many investors took a bath as businesses failed to realize enough revenue. With their Consumer Internet Barometer, however, the Conference Board has put some sanity back into internet business. In this section we'll examine how the survey is conducted, then look at recent survey results and illustrate how traders can use this information to pick stocks.
The Consumer Internet Barometer is a consumer-research survey of current trends in online commerce. Internet businesses can therefore use the Consumer Internet Barometer to tailor their business plans to the current online commerce trends. And traders can use the barometer to avoid companies that ignore the current trends, and target the ones moving to capture the most profitable demographics reported by the survey. Also, because it targets online consumers and tracks their behaviors, the Consumer Internet Barometer lays out a road map to profitability. This is valuable information for traders, who can select companies that are positioned to profit.
The Conference Board conducts the Consumer Internet Barometer with the help of international market research firm TNS NFO. Each quarter, the survey is mailed to 5,000 male and 5,000 female heads of households, who are asked detailed questions about their families' internet usage. Around 70% respond to it.
The full results of each survey are made available to subscribers only, but the main overall points are released to the public in a press release by the Conference Board. It is this quarterly release - available online via the board's website that traders can pore over for details on new trends in internet business.
Reading the Survey
The "Barometer" section of the survey presents three ratios along with the survey results. The three ratios represent a measure of the respondents' (1) usage of, (2) satisfaction with and (3) trust of internet commerce. For example, as of Mar 30, 2005, 66.5% of respondents were using the internet for commerce, with 43.3% reporting satisfaction with their internet experience and 25.4% trusting their online transactions.
In analyzing these three ratios, traders should monitor them for sudden changes. A drop in the satisfaction number, for instance, may indicate future sales weakness for online retailers like Amazon and eBay. It may also indicate a future drop in transaction fees for credit card issuers like J.P. Morgan and American Express, and a decline in shipping fees for carriers like UPS and FedEx. Consistently rising numbers, on the other hand, might indicate future strength for these internet-dependent businesses. But positive moves are usually already expected to a degree (and therefore reflected by share price), so declines in these numbers are the ones to look out for as they will likely bring larger share-price changes.
More actionable and forward-looking information can be found in the text of the Consumer Internet Barometer press release. For example, in the statement of the report released on Mar 30, 2005, the Conference Board states:
"More than a third - approximately 34 percent - of online households intend to file their 2004 federal taxes online, up from 28 percent a year ago... One in ten of those consumers will be filing online for the first time."Even before such information was released, astute traders would have already been aware of the seasonal bounce in revenue that tax preparers like H&R Block experience in each year's second quarter, during which the nation's tax-filing deadline occurs. The new information above, however, would have indicated that companies who assist in online filings are poised to have a banner year.
Important, tradable information such as that mentioned above appears in each release of the Consumer Internet Barometer. But traders need to know how to interpret the information. Take for another example the results of the survey released Jan 5, 2005:
"Concerned about child predators and vast amounts of questionable content on the internet, more than 95 percent of America's parents say they monitor their children's online activities...More than a third of parents manually check the Web browser history, significantly more than use blocking software or rely on their ISP service to monitor their child's activities."For a trader, the above statement reveals two important things. First, parents are looking for a reliable way monitor their children's time online, making the internet safe for their children. Second, current software solutions are not meeting the needs of parents. These two pieces of information is a signal for traders to be on the lookout for new software releases that better meet parents' monitoring needs - and that are well marketed, and easy to use.
For traders there is a ton of great insight that can be found in the statistics and ratios of the Consumer Internet Barometer. An important thing to remember is that returning customers are key to an online merchant's survival. And companies that offer the best shopping experience, combined with low prices can be expected to benefit from return business and increased revenue. Essentially, the companies that answer to the needs and trends expressed in the Consumer Internet Barometer have a better chance for success.
While the above are just examples, they point traders to a number of profitable areas of internet commerce. The Consumer Internet Barometer is a must-read for traders who wish to profit from the rational exuberance of online business. The survey gives anecdotal, as well as demographic, evidence for investing (or not investing) in areas of internet-based retail business. The three reported Barometer percentages allow traders to gain a quick read on the popularity of internet transactions. Traders should pore over the quarterly press release with a critical eye, watching for tradable information that could lead to the next profitable stock pick.
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