Dan Rayburn has a lengthy article this morning arguing that the online content industry has been flying so high that it has become detached from reality. The hype has analysts falling into the habits that often happen during bubbles, i.e. keeping both eyes on the short term trend while ignoring the altimeter. But when I first read the article, I must admit that my own first thought was "enjoy it while you've got it". Why? Because while online video may be flying, the infrastructure it is riding on has seen nothing from the markets this year. For example, let's plot the common stock performance thus far in 2010 for three of the high flyers Dan mentioned against three of the stronger of the next generation of internet infrastructure companies:
So here we have Netflix and Akamai up triple digit percentages - just rocketing upwards, with Apple still rising solidly too. And down clustering around zero are TW Telecom, Equinix, and Abovenet. Each is profitable, growing rapidly, well managed, even recession-proof, and obviously essential to the growth of the online content industry and bandwidth in general. They have little or no legacy baggage, dream big, generate more cash than they consume even while growing more rapidly than their peers, and stand to benefit from an extended boom in video as much as anyone. Eventually. So far though in 2010, when it comes to investor interest in online video and content they might as well be selling toothpaste.
Now, I'm not actually surprised by this. I know that sectors go in and out of favor, and despite private equity's current interest in fiber and data centers, internet infrastructure hasn't really been in favor in a rather long time with the public markets. And Netflix, Akamai, and Apple have been tearing things up this year -- they deserve some buzz. But one has to wonder how the markets can believe that the content giants can grow as rapidly as is being projected without fiber and colocation getting at least a little more R.E.S.P.E.C.T.
That doesn't mean I think internet infrastructure deserves the kind of boom we've been seeing in content, Dan is probably right and there is a bit of a bubble forming. But when it pops, maybe take another look at fiber and datacenter stocks, eh?
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