The strengthening dollar may weaken Internet giants

Google, EBay and Yahoo have gotten a big boost from a weak U.S. dollar. But the greenback comeback could spell trouble for these Internet giants.

So says Sanford C. Bernstein analyst Jeff Lindsay in a research note today. "Currency rates have had a significant positive impact on reported revenues for U.S. Internet companies over the last few quarters," he wrote. But this month the dollar started to gain ground against most other major foreign currencies.

Obviously, any company with significant international exposure could be at risk. Consider Hewlett-Packard: Last week it reported that its fiscal third-quarter revenue rose 10.5% from a year earlier to $28 billion, but without international currency translation, revenue grew at only half that rate. In fact, in a note published earlier this month, Bernstein analyst Toni Sacconaghi said the falling dollar had given a "material boost" to revenue at U.S. technology companies over the last two years. HP, IBM and Sun Microsystems all generate more than 60% of their revenue outside the U.S.

Likewise, Internet companies have benefited from a weak dollar, reducing spending overseas and lowering tax rates. Also, Internet companies have a higher proportion of their costs in dollars and more of their revenue in foreign currencies.

Should the almighty dollar continue to restore its might, say by another 10% by the end of 2009 (Lindsay's most pessimistic scenario -- pessimistic as far as Internet companies go), valuations could slip by 8% at EBay and 13% at Yahoo.

Why does the takeover-battered Yahoo get hit so hard? About 30% of its revenue comes from overseas, which is less than its peers, but Yahoo is the most vulnerable because of its Internet assets in Asia. The good news for Yahoo is that if the dollar starts to slide again, it will be in line for the biggest boost, Lindsay says.

And Teflon-coated Google? It gets more than half of its revenue from overseas but isn't troubled by currency movements because it's just so darn profitable.

-- Jessica Guynn

Photo by Michael Probst / Associated Press

Comments

[Streetwise]

Small factor.
The value of the dollar has very little to do with eBay sellers reluctance to sell overseas.
This is mostly due to eBay/Paypal policies of allowing easy, almost automatic refunds for "item not received" claims, which most often involve the most expensive items in a sellers stock. Buyer now has control over feedback which used to be a security tool for high end sellers.
All eBay Sellers who value their reputations and who don't enoy subsidizing criminals are badly in need of a transaction security system that works. The design of a proper system is already available.
You might question the need.
Ebay potential is at least 20 times its present listing value level.
There are 10 times more local cars on Craigslist than in your local Ebay search results. Boats, real estate, art, jewelry, coins, equipment.
Anyone wish to do an independent ebay seller poll?

[ppwdg.com]

Ebay is going to hurt the most regardless. Paypals recent scams on sellers and buyers have all but shown us that its not safe to conduct business on Ebay overseas.

By Jan of 2009 Ebays stocks are expected to fall another 20% to a total drop of 59% since October2007. Ebay has very poor seller support. The backbone of its power is its sellers. Yet eBay is more concerned with the illusion that none of its sellers are buyers. So treat the seller bad and the buyers will come back. Chasing away thousands of sellers. Boosting their listing counts with basically fake listings with buy.com millions of listings with a 3% sell through rate. With a current drop in share value of 39% they still have no clue.

They now raised FVF fees to some categories from 8% to 15% Most sellers in these categories will just leave ebay altogether.

My company was built around helping sellers sell on eBay. We are now recommending to all of our buyers to leave eBay for Amazon.