From: Robert J. Bradbury (bradbury@www.aeiveos.com)
Date: Tue Dec 21 1999 - 10:42:08 MST
On Tue, 21 Dec 1999 CurtAdams@aol.com wrote:
>
> My point was that, while our current stock market sure looks like
> a bubble, it's still far from the most severe bubble the world has
> seen.
>
Is it? I noticed a story yesterday, perhaps in Barron's(?), about
the possibility that moving to eBusiness might drastically change
the cost structure of modern businesses. If you look at most
organizations you get something like 10-15% going into management
overhead and another 10-30% going into sales overhead. If
those could be substantially reduced or eliminated, then
your profits would go up substantially meaning the P/E ratios
would come down very rapidly. The trick is that organizations
have to develop rolling innovation strategies. eSales is going
to knock the profits out of a business *unless* you are the sole
supplier or have a "captive" market. So the companies that are
going to do well are those who innovate and get out as soon as
the competition catches up and cuts the profits. It looks like
a huge speedup of old business models.
I think that what may be happening is the market is valuing
companies based on 2-3 years into the future earnings because
the acceleration of innovation is reducing the 2-3 years
it used to take to develop and market a product to 1-2 years.
The real trick is going to be placing the bets on the companies
that can implement that model and dump the ones that can't manage it.
You have to look at companies like IBM, HP, 3M, Lucent, Cisco, etc. that
seem to be really really good at innovation. For those companies
the high P/Es may be quite justified.
Robert
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