Is the bubble about to burst for Australian dotcoms?


By Richard Lie

A word of warning: Trading Dotcoms is not for the faint hearted and anyone who experienced the Tech Crash of 2001 will agree. It was brutal, with a great number of stocks falling to a selling price of zero. Never before have fortunes been made and lost so quickly. However, things were a little different back then. The web was still a new idea, a new place to do business, and nobody really knew how things would play out.

Moreover, companies such as eBay, Amazon, and Google were not the behemoths they are today. So what’s new? Well, a lot has changed, and a lot has not. The web has certainly grown up – global e-commerce sales totaled $28b in 2000, today they total $1.5 trillion. We don’t just watch porn and buy the odd book from Amazon any more; the web has become a one-stop shop for pretty much everything. It’s still the new frontier, and the land grab continues. At this stage it is also a low cost, high margin business with few barriers to entry. There is still massive scope and opportunity, with new players constantly entering the fray, and there will continue to be winners and losers. Remember Netscape and MySpace? At that time, not even the wildest optimist could have imagined a ‘social-media platform’(the term didn’t even exist back then) like Facebook (currently valued at $200 billion in market capitalization) would some day rival the world’s largest investment bank JP Morgan.

Truth is indeed stranger than fiction. In Australia we have a few new names of our own, albeit on a smaller-cap scale: REA ($5.6b), Seek ($5.5b), Carsales ($2.5b) and Wotif ($530m). These companies were founded and developed in Australia. Currently, they are all embarking on international expansion. But before trying to figure out whether we want to own these stocks, let’s take a topdown approach by looking at the broader market first: *The Nasdaq 100 is dominated by seven stocks: Apple, Microsoft, Intel, Google,Amazon, Cisco, Qualcom. These stocks make up almost half the index’s weighting. Drill down into the Internet space *The Dow Jones Internet Index tracks the prices of 43 Internet stocks. Almost half the index’s weighting is composed of Google, Facebook, Amazon, Priceline, eBay, and Yahoo!

Big picture conclusion:

After leading the charge higher, Internet stocks are now underperforming in the broader market. This relative weakness is not a good sign. If they can’t move higher when the broader technology space is making new highs, what will happen when the Nasdaq finally turns? Moreover, even though this selloff has made expensive Internet stocks slightly cheaper, value-conscious investors should be wary of catching falling knives. Going from “growth at any price” to “growth at a reasonable price” is not a promise for short-term gains. Many analysts have started banging the table stating that it’s time to sift through the damage and pick up the best companies on the cheap. According to many of them, growth-adjusted valuations look interesting. I would advise against following analyst recommendations. They rarely think as one, and when they do it normally spells danger. Their vague ‘no-level-analysis’ has little accountability as well.

I’m a technical trader who solely uses price to make decisions in the stock market. Specific levels tell me when I’m right and wrong. As any money manager worth his or her salt will tell you, risk management is absolutely vital to long-term success. You can find a reason for doing pretty much anything in the financial markets.

All buyers and sellers have their own compelling reasons to act at any given point in time. As a young man, my mentor used to tell me to always respect the guy on the other end of the trade: “There’s always a sucker,” he used to say, “and sometimes that sucker’s gonna be you.”


Let’s take a look at REA, SEEK, Carsales and Wotif, amongst others. How would I manage these trades? What are the important levels to watch? And where is the risk and reward in these stocks? Let’s drill down and see what price is telling us:



Seek operates Australia’s dominant employment site. It is also a host of other related businesses spanning across the globe. Asia forms a central part of its growth strategy. The stock has been a stellar performer, and we’ve already come a long way. Any break above the high at $18.00 should leverage another rally. However, I wouldn’t be surprised if we broke below the shortterm support at $16.00 due to broader market weakness. The longer-term outlook still looks positive. is Australia’s leading online automotive classified website owning various affiliate sites and approximately 20 per cent of iCar Asia. For 12 months, price has been contained between the all-time highs at $12.00 and recent support at $8.50. I feel this is a topping pattern. However my bullish and bearish levels are clear. Any valid break of the upper or lower trading range will determine this stock’s future direction.



REA owns Australia’s number one property website, and, as well as international real estate advertising sites such as the market-leading Italian property site, This stock has already broken trend line and moving average support levels. I expect lower prices – the first support level is at $36.00. Volume has spiked on down weeks, which is also a worrying sign. I don’t shortstocks, so my stance regarding REA is currently neutral.



Wotif is one of the country’s most popular hotel booking websites. The online company sells one in ten hotel nights Australia-wide. The company also operates a number of other travel-related sites, and is looking for growth domestically and in Asian bookings. This has been a stinker. There’s a lot not to like about this chart, not to mention, the travel space is global and highly competitive. That aside, the stock has fallen dramatically. There is some support at current levels and evidence of buying demand at this weakened price. We might see a flick back, but at this stage we can’t get excited about this stock. Important note. Shortly after I wrote this Wotif became subject to a takeover bid and the stock rallied 25 per cent to $3.27 the next day. There’s your flick back!

Conclusion for the Australian Dotcoms:

I have some serious concerns in the short term, at least. The market looks toppy for Internet stocks. There are many reasons to buy this space. For instance, I can’t deny the strong fundamental backdrop. Also, long-term investors holding the right stocks will be exposed to powerful demographic and social trends in Asia, in particular. This presents massive opportunities as middle-class consumers in the Asia-Pacific region are expected to grow from half a billion in 2009, to 3.2 billion in 2030, according to the federal government. However it’s a different story looking at price in isolation. I won’t sugar coat this. Despite the great run-up in many Australian Internet stocks in recent years, BUYER BEWARE! Price is not acting like it should before another leg up. The pendulum seems to be swinging. I can’t tell why, however, I will let the analysts give me the various reasons after the move.

Richard Lie is ASIC licensed, the founder of the hedge fund

Crusader Capital Management, and the stock advisory service, which is currently offering FREE TRIALS.

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