Don't invest in Internet, warns Gates

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The Independent Online
BILL GATES, the computer software pioneer, has added his weight to the chorus of voices warning that Internet stocks have become seriously overvalued.

Many of these companies, some of them now valued by stock markets at billions of dollars, would not survive the competitive pressures of the World Wide Web, he said.

Stressing that he was a software specialist and not an expert on stock valuations, Mr Gates said he would not advise any friend to invest in Internet companies, and those who did were taking on "monumental risks".

The billionaire software entrepreneur said that the pace of change in Internet technology and the degree of commercial competition that the net makes possible made projections for the future revenues of many of these companies highly suspect.

In a surprising observation which seemed to question the very high valuation the stock market puts on his own company, Microsoft, Mr Gates told a meeting of journalists at the World Economic Forum in Davos, Switzerland, that he thought that all technology stocks were much too highly valued. "They should be selling on lower multiples than ordinary companies because this business is changing so rapidly, and as a consequence it is impossible to predict an earnings stream into the future," he said. "Disney and Coca- Cola are in a far more stable position in the market place than we are, and with them you know they will be making good profits for years to come. With many tech companies this is not the case".

Mr Gates predicted that the balance of benefit from the rapid growth of electronic commerce would be with consumers rather than the businesses that operate on the Net. "Many old established distribution companies are now appearing on the Internet and the competition is going to be intense," he said.

"Investors are rushing in like a gold rush. In some respects this is a good thing since it attracts huge amounts of venture capital into the business and that accelerates the pace of progress and change in this industry."

Mr Gates said Microsoft wouldn't rule out buying an Internet company, even at current valuations. "Sometimes there is a piece which fits into our strategy which might make it worth paying these valuations, but that is very different from what the company is worth on a stand-alone basis."

Mr Gates thought it a terrible indictment of European enterprise and business that the composition of its top 50 companies had changed so little over the past 25 years. In the US, only three or four of the top 50 companies are the same. In Europe it was the other way round.

He thought it unlikely that Microsoft would still be in its present position in the league table of US companies in 25 years time, given the degree of competitive pressure and change it has to respond to.

Looking relaxed and at ease with the world, Mr Gates said he wasn't allowing the anti-trust case against Microsoft in the US to interfere with either his life or his company. There are more important things in life, he said, admitting that he now took his daughter to school every Wednesday morning before going to work.