Guess What? Internet Stocks Had A Terrible 2006

Lost amidst all the Web 2.0 hype, the eye popping deals like Google's $1.65BN for 18 month old YouTube and the huge increases in VC Internet-related investments is a open secret which many people in Silicon Valley don't seem to have fully assimilated: Internet stocks had a pretty terrible year in 2006.

While all the major indexes had decent years with the Dow up 16.3%, the S&P 13.6% and the Nasdaq up 9.5%, the Internet sector actually turned in a return of negative -2.8%.  Now that doesn't include dividends, but few if any Internet stocks pay dividends so I think it's safe to say that Internet stocks, as a whole actually lost money in 2006.

"Just how is that possible?" you might ask, well you need to look no further than the 5 largest Internet Stocks.

The table below lists the Top 5 Internet Stocks in terms of market cap:

                                                           

Ticker	Cap$BN	1/1	12/31	%Chg
GOOG	141	414.86	460.48	+11%
EBAY	42	43.22	30.07	-30%
YHOO	35	39.18	25.54	-35%
SCH	24	19.34	14.67	32%
AMZN	16	47.15	39.46	-16%

In aggregate the market cap of the Top 5 Internet companies dropped $18.5BN or 6.7%.   That's a huge hole for the rest of the sector to try and make up (which it didn't).  Matters weren't helped by the complete implosion of the online gambling sector either which lost well over half its value.  And don't try to blame it all on Yahoo and Ebay either, even small cap internet stocks had a bad year.  While they didn't lose money, they gained a paltry 2.6% compared to the Nasdaq's 9.5% return.  Even the Net's new standard bearer, Google, underperformed the market, a fact which could probably win you more than a few bar bets this week. 

So don't let all the hype fool you, the Internet remains a pretty treacherous corner of the market no matter how much AJAX and Adsense you throw at it.