Amazon shares surge 13% to record above $1100 as Wall Street shocked by giant’s rapid growth

Wall Street is buzzing over Amazon’s impressive September quarter results.

Analysts say they are growing more confident Amazon’s success will continue because of its proven ability to invest in new opportunities.

The e-commerce juggernaut generated third-quarter earnings per share of 52 cents, handily beating the 3 cent Thomson Reuters consensus estimate.

Its shares hit a new all-time high Friday and closed up 13 percent after reporting the results after the closing bell Thursday. Around midday they rose above $1100 for the first time ever.

“Amazon reported better-than-expected revenue and operating income, driven by strong Prime Day signups,” wrote Credit Suisse analyst Stephen Ju in a note to clients on Friday. “And once again it demonstrated accelerating growth across all e-commerce reporting segments.”

The analyst said the strong growth was the result of the company’s massive investment spending. Amazon had $5.7 billion in capital expenditures during the third quarter, $300 million more than he expected.

Jeff Bezos

“We have always believed that Amazon continues to allocate capital as a function of consumer and enterprise demand for its services across e-commerce and AWS,” he wrote, referring to Amazon Web Services, the company’s web hosting operation. The third-quarter result “serves as the confirmation of the rationale for the investment cycle that began in 3Q16.”

Ju reaffirmed his outperform rating on the shares and raised his price target to $1,385 from $1,350. The new target is 42 percent higher than Thursday’s closing price.

Jefferies analyst Brent Thill said he believes Amazon’s big investments are driving growth for its Prime subscription services, which is then spurring stronger sales.

The Amazon “results reinforced again our long-standing thesis that investment in the assets behind AMZN’s competitive moats (fulfillment, digital content, AWS) continues to drive the Prime flywheel effect,” Thill wrote Friday. “Subscription rev growth accelerated in Q3 on strong Prime membership growth driven by above-expectations Prime Day results which also drove higher than expected results internationally.”

Thill reiterated his buy rating and raised his price target on Amazon shares to $1,350 from $1,250.

One analyst said he is optimistic that Amazon’s scale and track record will help it maintain strong growth rates. Third-quarter sales rose 34 percent from the same period last year, to $43.7 billion.

“Amazon is one of the highest quality companies in the internet sector considering its consistent innovation and execution, the size of the opportunities it is pursuing, and its positioning within those future growth opportunities,” Citi Research analyst Mark May wrote Friday. “We believe the company is positioned well relative to a number of growth vectors in the Internet sector and see upside to shares considering its compelling growth versus industry peers.”

Amazon has been one of the best-performing large-cap stocks in the market. Its shares rallied 30 percent this year through Thursday versus the S&P 500’s 14 percent gain.

This chart shows how Ruth Porat is exercising discipline at Alphabet — and investors love it

Ruth Porat, CFO of Alphabet, at the New York Economic Club on May 22, 2017.

Google Fiber was one of the company’s most ambitious projects. Under the original vision, the company was going to run fiber-optic cable directly to consumers’ homes, giving them super-fast internet.

Google announced it would roll the service out in Kansas City, Kansas, in 2011, and followed by eight other cities.

Then, Alphabet happened.

Specifically, Google hired new CFO Ruth Porat in 2015, and that August it reorganized into a holding company called Alphabet, consisting of the core Google businesses — which provide nearly all of its revenue and all of its profit — and a set of longer-term investment areas called “Other Bets.”

Fiber was placed into that Other Bets category. A year later, in August 2016, the company took a closer look at the Fiber business and saw it wasn’t meeting subscriber expectations. So it decided to concentrate on less-expensive wireless last-mile solutions, according to a report inThe Information. A couple months later, in October, Google Fiber CEOCraig Barratt stepped down, the company “paused” all uncompleted but previously promised rollouts, and laid off some Fiber employees.

While Alphabet never disclosed exactly how much it was spending on rolling out Fiber, the company does break out capital expenditures within its Other Bets category. Capex there started climbing rapidly in the second half of 2016, peaking at $504 million in Q4. Then, it dropped dramatically. In Alphabet’s most recent quarter, which it reported Thursday, it spent only $77 million on capital expenditures in the Other Bets category.

The conclusion? Porat and the rest of Alphabet management are keeping a tight lid on spending in the company’s long-term bets, and if these bets are not performing to expectations, they’ll shut them down.

Investors seem happy with this discipline — Alphabet stock is up about 6 percent after Thursday’searnings report exceeded investor expectations.

A recent ride in a self-driving van from Google sister company Waymo shows they’re almost ready for prime time

As I stepped into the back seat of Waymo’s self-driving minivan for a ride around the company’s test facility in Atwater, California, it felt like dozens of other times I had ridden in a minivan. That changed once I shut the door and I took off for a short drive where the minivan encountered pedestrians, stalled cars, bicyclists and a variety of staged scenarios.

I experienced how many of us could be making trips when there’s no one behind the wheel.

“We’re excited where we are right now,” said John Krafcik, CEO of Waymo, formerly known as the Google self-driving car project and now a separate company within Google’s parent company, Alphabet.

“This technology has the potential to be transformative.”

A Waymo self-driving van encounters two stalled cars in a staged scenario in the company's testing ground.

A Waymo self-driving van encounters two stalled cars in a staged scenario in the company’s testing ground.

Not only that, but Krafcik also believes we could see vehicles without drivers on streets and highways sooner than many expected.

“We’re getting close,” he said. “We’re not going to give you a date when it will happen, but stay tuned.”

Krafcik’s optimism comes as automakers like Tesla market features like Autopilot, which allows drivers to take their hands off the wheel for short periods of time. General Motors’ Super Cruise allows hands-free driving on the highway.

While GM CEO Mary Barra says her company is “quarters, not years” from being to able to remove drivers from the autonomous-drive vehicles it’s developing, no auto or tech firm has yet to roll out a self-driving vehicle that can pick up riders, take them in a trip and drop them off with no one behind the wheel.

Waymo believes that could change in the not too distant future.

Which is one reason the subsidiary of Alphabet brought reporters to see its test facility at the abandoned Castle Air Force Base three hours southeast of San Francisco.

Four markets for Waymo

Krafcik sees Waymo offering self-driving products in four areas:

  • Ride sharing/taxi hailing
  • Trucking/logistics
  • Municipalities ensuring “last mile” transportation.
  • Personal use cars.

Whether the company partners with automakers, ride-sharing firms or other companies remains to be seen. Waymo is already working withFiat Chrysler, Lyft and Avis.

Waymo is already giving a select number of residents in Chandler, Arizona, rides in self-driving Chrysler Pacifica minivans. As part of that program, the company has modified the vans with sensors, cameras and lidar radar so each Pacifica has a 360-degree view of what’s happening around it.

The minivans also have two other features designed to make passengers feel comfortable riding in a self-driving vehicle.

First, there’s a small panel attached to the center of the ceiling where riders can push one of four buttons to lock/unlock doors, begin a ride, pull over or call Waymo tech support.

Waymo's self-driving vans have a four-button panel for riders to lock/unlock doors, begin a ride, pull over or call Waymo tech support.

Waymo’s self-driving vans have a four-button panel for riders to lock/unlock doors, begin a ride, pull over or call Waymo tech support.

The second is a screen on the back of the front seat showing passengers what the self-driving minivan is seeing on the streets, sidewalks, and so on as it takes them to their destination.

“It’s reassuring to riders to see what’s happening around them,” said Juliet Rothenberg who oversees Waymo’s in-car user experience.

A little odd, but I got used to it

So what did I think going for a ride in a truly self-driving vehicle with nobody behind the wheel?

Yes, it’s a little odd being in the back seat and watching the steering wheel turn on its own.

That said, the screen showing what’s ahead on the street, pedestrians crossing the road or other cars turning in front of us was easy to understand. I would compare it to watching a much more detailed GPS map that shows you where you are headed.

The short ride and seeing Waymo’s technology up close makes it clear the technology is closer than ever to being used by the public. There are still hurdles to overcome with laws and regulations, so it may be a while until a robo-taxi picks you up. Still, Krafcik remains laser-focused.

“Our goal is to bring this technology to the world and public roads,” he said.

Pharma execs would welcome Amazon into drug distribution, say the space is ‘ripe for disruption’

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The prospect that Amazon will enter the pharmacy space has cast a pall over stocks of drug distributors and retail pharmacies, erasing hundreds of millions of dollars from their market value.

But in another sector of the drug space, Amazon’s entry would be welcomed: pharmaceutical companies.

“Just like science is disrupted with gene therapy or novel treatments, I think the drug distribution channel also should be disrupted with improvements based on technology or efficiency,” Allergan CEO Brent Saunders told analysts on the company’s third-quarter conference call Wednesday.

Pfizer chief Ian Read made similar comments in an interview with CNBC on Tuesday.

“We haven’t had any conversations with them [Amazon],” Read said, but we’re “more than willing to talk to anybody who can ensure” the efficiency of the distribution system.

Amazon is considering an entry into the space, with a decision expected as soon as Thanksgiving. Last week, news that Amazon had secured wholesale pharmacy licenses in 12 states further fueled speculation – though experts say those licenses don’t facilitate an entry into drug distribution; they support Amazon’s existing business in medical equipment.

Still, conviction – or hope – runs high that Amazon is interested in pharmacy. Wells Fargo analyst David Maris, who covers drug companies, points out that the URL AmazonRx.com is registered to the Amazon Legal Department.

“We do not see the Amazon threat alleviating any time soon,” wrote David Larsen and Matt Dellelo, analysts covering the drug supply chain space for Leerink, in an Oct. 31 research note. “While these licenses may be related to other health-care products and devices, in our view it is likely that Amazon will eventually get into the pharmacy services space.”

Most exposed, they wrote, are retailers – CVS, Walgreens and Rite-Aid– followed by drug distributors – McKesson, AmerisourceBergen andCardinal Health.

Others have focused on Amazon’s potential to disrupt the pharmacy benefit manager – or PBM – space, which is dominated by three major players: Express Scripts, CVS Caremark and UnitedHealth’s Optum.

PBMs, in addition to operating mail-order pharmacies, negotiate drug prices on behalf of insurers and employers, which can often lead to adversarial relationships with pharma companies.

“I’ve always thought that the current system is pretty inefficient, when you have PBMs, the pharmacy benefit managers, between the manufacturers and the ultimate users,” said Joel Marcus, CEO of Alexandria Real Estate, which caters to life science companies.

If Amazon entered the space, Marcus told analysts on the company’s third-quarter conference call this week, “it’s going to rationalize the system.”

Another biopharma CEO, speaking on the condition of anonymity, put it more bluntly: “We’d be fools not to consider anyone who can disrupt the insurance/PBM stranglehold these companies have over patients and us.”

To be sure, many point out the pharmacy space is complicated and heavily regulated, which could deter Amazon from pursuing it.

“We’ll see on the pharmacy side; there’s a lot of regulation there, a lot of red tape,” Piper Jaffray analyst Michael Olson, who covers Amazon, said on Squawk Box Friday. As an example, he pointed to Amazon’s wine business.

“They’re in the business of shipping wine across state lines right now, and they’re looking at getting out of that, because that has too much regulation,” Olson said. “So I’m not 100% convinced they’re going to be getting into the pharmacy space, but we’ll see.”

Some in the drug industry argue that’s precisely why Amazon could successfully disrupt the pharmaceutical supply chain.

“It’s an area rife with inefficiency and a lot of turf,” said the aforementioned biopharma CEO. “It’s overly complicated; that’s the opportunity.”

Cramer Remix: Why Wall Street has suddenly turned positive on Kellogg

The consumer packaged goods space has been notoriously difficult, so CNBC’s Jim Cramer wasn’t all that surprised when he saw mass analyst upgrades in the stock of Kellogg.

“They’ve got to like something, don’t they?” the “Mad Money” host quipped. “It might as well be Special K, down nearly 15 percent for the year with a new CEO and a sense that the darned stock has hit bottom, even if the business hasn’t.”

Kellogg, the maker of Eggos waffles and Pringles chips, once had strong growth, but has recently fallen under pressure. The company has had to employ cost-cutting tactics to stay afloat, and while Cramer didn’t want to be too cynical, he found the outlook largely unfavorable.

“The analysts who cover this once great growth category have to find something to love,” Cramer explained. “So they ask themselves, how about a 3 percent yielder where the future looks brighter than the past? How about Kellogg? And that’s how a stock in this bedraggled consumer products group can spike after a long road down, a road I believe that will be less traveled by buyers after the stock moves up a couple of points from here and then the buyers move on.”

Bull market rules

Kai Pfaffenbach | Reuters

Some may think that Cramer is foolish for not being afraid of the red-hot bull market, but in reality, he’s just trying to make you money.

“I am actually less worried about looking like an idiot and more concerned that you might be scared away from the stocks by the tepid conventional wisdom,” he said. “That’s why I think it’s so important that you have to understand how a bull market like this one operates.”

The rules for investing in bull markets are different, so Cramer went over his 6 key guidelines for how to look at stocks when rallies become routine.

Allergan CEO talks unusual patent deal

Brent Saunders, CEO, Allergan

Scott Mlyn | CNBC
Brent Saunders, CEO, Allergan

Allergan’s controversial deal with the Saint Regis Mohawk tribe giving the group the patent rights to one of its key drugs was widely misunderstood, Allergan CEO Brent Saunders told CNBC.

“I think there’s a lot of misunderstanding on why we did it,” Saunders told Cramer in a Wednesday interview. “It wasn’t desperation, it was tenacity.”

In exchange for the patents for Allergan’s eye drug, Restasis, and $13.75 million (plus potentially $15 million in annual royalties), the tribe granted Allergan an exclusive license to sell the drug.

The deal involving the billion-dollar drug drew widespread criticism, raising concerns that Allergan could now raise the price of Restasis while keeping it under patent protection.

But Saunders said that it was simply how the pharmaceutical industry works.

Tom Hayes, CEO, Tyson Foods

Scott Mlyn | CNBC
Tom Hayes, CEO, Tyson Foods

Sustainability is a hot topic across industries, but Tyson Foods CEO Tom Hayes told CNBC that even major food producers like his have to step up to the plate.

“Here’s the issue: If we’re going to feed nine and a half billion people around the world by 2050, we have to be part of the solution. Big food has to get in the ballgame,” Hayes told Cramer when asked about sustainability efforts.

As a start, Tyson, the largest U.S. chicken producer, recently eliminated the use of antibiotics in all of its chicken products.

Cypress Semiconductor CEO: “We play where it matters”

As money pours into the internet of things and autonomous driving industries, Cypress Semiconductor CEO Hassane El-Khoury told CNBCthat his company will undoubtedly grow with them.

“We play where it matters,” El-Khoury told Cramer. “We’re not playing in the commodity, low-density markets, but we have a big focus on auto, we have a focus on IoT, we have a focus on industrial, and you’ll see us playing and taking share there and growing with that market.”

With the No. 1 spot among wireless connectivity chipmakers, Cypress Semiconductor is uniquely positioned to grow business at a massive rate as these industries expand, the CEO said.

“When a customer like Amazon or any customer wants reliable, high-technology connectivity products, they have to go to the leader. That’s Cypress today,” El-Khoury said. “That business grew 80 percent year on year, 80 percent year on year. That’s tremendous growth and that has established our leadership even more for years to come.”

Lightning Round: My only regret about ISRG

In Cramer’s lightning round, he rattled off his take on some callers’ favorite stocks:

Intuitive Surgical: “What can I say? One of my absolute favorite stocks. I like the business model and I like the management. My only regret: Where are they on this show? Why don’t they come on? I love the da Vinci [Surgical System, Intuitive Surgical’s flagship product].”

CME Group Inc.: “I’ll tell you, I wish the [Chicago] Bears played like CME Group, because that stock is a buy, buy, buy, buy, buy, buy, buy, buy, buy.”

Apple’s Tim Cook Says Dividing People a Greater Issue Than Russian Facebook Ads

As Washington lawmakers investigate how Russia exploited social media to influence the 2016 presidential election, Apple CEO Tim Cook says the tech giants have something much greater to be concerned about.

And it affects everyone.

“I don’t believe that the big issue are ads from foreign government. I believe that’s like .1 percent of the issue,” Cook told NBC Nightly News anchor Lester Holt in an exclusive interview that aired Wednesday night.

“The bigger issue is that some of these tools are used to divide people, to manipulate people, to get fake news to people in broad numbers, and so, to influence their thinking,” Cook said. “And this, to me, is the No. 1 through 10 issue.”

In an interview from Apple’s sprawling new Cupertino, California, headquarters, Cook also spoke about customers’ privacy in the age of the internet as well as the release Friday of the iPhone X, the latest incarnation of the company’s flagship product.

Apple’s Silicon Valley peers remained in the spotlight Wednesday as members of the House Intelligence Committee grilled representatives from Facebook, Twitter and Google for their inability to prevent Russia from exposing millions of Americans to ads meant to undermine last year’s election.

On Tuesday, Senators hammered them as well. Sen. Al Franken, D-Minn., asked Facebook how it could “not make the connection that electoral ads paid for in rubles were coming from Russia? How could you not connect those two dots?”

Image: Apple CEO Tim Cook sits down with Lester Holt.
Apple CEO Tim Cook. NBC News

A Facebook rep said the ads bought by “bad actors” was a small percentage, but that “any amount was too much.”

An estimated 126 million Americans— about one-third of the country’s population — received Russian-backed content on Facebook during the 2016 campaign, according to the company.

The tech giants told lawmakers that steps were installed to prevent such meddling again, including the shutting down of suspect accounts.

Cook, in his interview with Holt, said the social media companies have “learned along the way a lot” since the election.

“We’ll probably learn more in those hearings as to the particulars. But I do think that technology itself doesn’t want to be good. It doesn’t want to be anything,” Cook said. “It’s up to the creator of the technology and the user of the technology to make it good.”

Cook, who took the helm of Apple in 2011, said it’s especially important for companies to build trust with their customers, especially at a time when personal data can easily be hacked or used online.

While there’s been much hype surrounding the iPhone X’s facial-recognition technology used as one way to unlock a phone, Cook said people shouldn’t worry that Apple is surreptitiously collecting data.

“We have a chip in here where the image of your face is stored and encrypted. And so, Apple doesn’t have that,” Cook said. “Your device has that.”

Last year, Apple took a stand in favor of privacy by fiercely opposing a court order to unlock the iPhone used by one of the San Bernardino shooters. Cook in an email to employees accused the federal government of an “overreach” that could potentially breach the privacy of millions of customers.

Cook told Holt that if he had to, “I would make the same decision today.”

Why Pinterest boss Tim Kendall takes a daily ice bath

Tim Kendall

When you think of the giants of Silicon Valley, Pinterest may not immediately spring to mind.

But with 200 million active users and a recent valuation of $12.3bn (£9bn), the platform that started out in 2012 as a quirky online scrapbook has quietly become a hot commodity for advertisers and investors alike.

Perhaps that’s why Pinterest president Tim Kendall chooses to keep his cool with a daily ice bath.

And the BBC’s Zoe Kleinman found out that’s not his only unusual routine…

Zoe Kleinman: Is it true that you have an ice bath every morning?

Tim Kendall: I now have a freezer on my back deck that I put water into, and now I get into that because the bath with ice wasn’t quite cold enough. So, it continues to escalate.

It’s like people having coffee in the morning. It’s a slightly more extreme version of that.

PinterestImage copyrightGETTY IMAGES
Image captionPinterest has 200 million users worldwide

It gives me a lot of energy, wakes me up, resets my mind and my body. Our days are long and intense and I find that if I do it I feel better throughout the day.

My children love it. They like to talk to me while I’m in it, they ask how much it hurts, they dip their fingers in and then shake and say “Argh, it’s so cold!” They’re pretty entertained by it but I don’t know how long that’s going to last.

I do ask them every once in a while, “Hey, do you want to get in?” And they are very clear that they do not want to get in it.

ZK: You are renowned for always wearing a T-shirt with the word “Focus” on it. You’re wearing one today – what’s that about?

TK: It’s a shirt that I’ve been wearing for almost five years. It’s not the same shirt but it says the same word on it.

It started as a bet with a colleague of mine, seeing who could wear the shirt for longer. He and I kept wearing it and eventually I kept wearing it longer.

The whole point is that we philosophically think that if you do fewer things, you can do those fewer things much better than if you are spread across too many things.

It’s important that we remind ourselves of that. Sometimes I’m not great at focusing but if I put this shirt on every day, in a small part it reminds me that I need to stay focused and remember to say “No” a lot, which I think most people – including myself – are not great at.

ZK: You don’t allow laptops or mobile phones in meetings. Isn’t that unusual for a tech boss?

TK: I don’t stick to my own rules as much as I like to.

I think that in my experience, if you’re having a meeting there’s probably important information – hopefully. If it was set up thoughtfully, the right people are in it and the agenda is right, it should be content you should be paying attention to and if you’re on your phone or on your laptop you are definitely not paying attention to it.

I’ve been in meetings where I’ve been on my laptop and I’ve missed critical information that I needed to hear, so we try to make it somewhat informal but a bit of a rule that we try to to follow, so we’re all engaged with each other.

When you leave the meeting, get back on your laptop, get back on your phone. But when you’re in the meeting, be in the meeting.

UK Government To Fix The Internet By Asking Companies Nicely For Lots More Cash

The British government has announced its latest plan to keep nasty stuff off the internet: asking companies such as Facebook, Twitter and Google to pay a voluntary levy.

The new Internet Safety Strategy follows Conservative promises earlier this year to tighten up internet safety legislation. However, with the government lacking an overall majority (and having rather a lot else to be thinking about right now), it has now given up on making new laws and has watered down its proposals – for the time being.

First up in the Internet Safety Green Paper is a new social media code of practice aimed at providing a ‘joined-up approach’ to dealing with bullying, intimidating or humiliating online content. The government says it may demand changes in reporting mechanisms and privacy settings as part of this.

It’s also promising an annual internet safety transparency report, and more support for small businesses in building (unspecified) safety features into apps and products from the very start.

But it’s the new levy that’s likely to attract most interest. There’s no indication as to how much it might be, but the money will go ‘to raise awareness and counter internet harms’.

“Behaviour that is unacceptable in real life is unacceptable on a computer screen. We need an approach to the internet that protects everyone without restricting growth and innovation in the digital economy,” said culture secretary Karen Bradley, announcing the new measures this morning.

“Our ideas are ambitious – and rightly so. Collaboratively, government, industry, parents and communities can keep citizens safe online, but only by working together.”

As is usual for this government (breaking encryption without breaking encryption, for example), there’s some confusion between aspiration and achievement.

“We also believe that seeking a global leadership role on online safety will position Britain as a leader in technology that supports online safety,” the document reads.

“We will work closely with the Department for International Trade to ensure that the export potential for this technology is fully realised.”

The UK is, indeed, desperate for its rather heavy-handed views on internet regulation to win support from the rest of the world. However, rather than focusing on the most obviously like-minded nations – China, say, or Russia – it has other plans.

“We will work through our network of diplomatic missions, to establish new support for our work, including through international institutions such as the UN, EU, Commonwealth, OECD and the Council of Europe,” the Green Paper reads.

It’s coming for your internet too, in other words.

And anybody breathing a sigh of relief that the proposals are effectively meaningless should think again, with the government warning  the voluntary levy may at some point be enforced through the law.

“We are currently reviewing the existing regulatory framework,” the Green Paper reads.

“As outlined in the Conservative manifesto, we will consider further steps that may be required to continue to develop and uphold a robust regulatory environment that both supports digital service providers and delivers improved protection to users, including – if necessary – a sanctions regime to ensure compliance.”

Chinese Internet Shares On Fire, For How Chinese Internet Shares On Fire, For How Long??

Chinese internet stocks have been on fire, so far, this year, beating their American counterparts by a big margin.

The KraneShares SCI China Internet ETF has soared 65.58%, making it the best performing emerging market ETF.  Big names that are included in the ETF have fared even better. Alibaba Group has gained 102.73%, Sina Corporation 88.10%, and Tencent 84.47%.

Meanwhile the Powershares QQQ shares have gained just 23.31%.

KraneShares SCI China Internet ETF Top 5 Holdings

Company/ETF YTD %Change
KraneShares SCI China Internet ETF 65.58
Alibaba Group 102.73
Sina Corp 88.10
Tencent 84.47
Powershares QQQ 23.31

Source: Finance.yahoo.com  10/7/2017

That shouldn’t surprise those who follow China’s online economy, which is the largest and the fastest growing economy in the world, closely. But it should surprise those investors who have been buying into previous rallies of these stocks, and have seen their investments vanish in the aftermath of accounting scandals and heavy-handed government intervention.

The good news for China’s Internet bulls is that things look quite different. Most Internet companies that have posted big gains are profitable. And valuations aren’t as stretched as they were in previous rallies. Tencent’s PE, for instance, is 53.58, Baidu’s 42.92, and Sina’s 28.5. Though,there are exceptions to the rule, like CTRIP.com and Tal Education, which trade at astronomical valuations.

KraneShares SCI China Internet ETF Top 10 Holdings

Company PE
Tencent Holdings 53.58
Alibaba Group 60.31
Baidu Inc. 42.92
JD Com Inc.
CTRIP. Com 631.98
Tal Education 112.06
58 Com Inc.
Momo Inc. 40.73
Sina Corp 28.50
Autohome 28.43

While most Chinese internet companies have become profitable, they have become smarter, too climbing into the world’s list of smartest companies — as indicated in a recently published MIT Technology Review’s annual listing which surveys both small and large companies based on their ability to innovate and execute.

Two of these companies that made it to the list this year are Tencent (8th position) and Alibaba 41th.

It’s the second time the two companies made to the list — Tencent (TCEHY) occupied the 15th position in 2015, while Alibaba (BABA) occupied the 4th position.

Wanted: More Spectacular Internet Failures

When people think of the dot-com bubble of 2000, they often think of Webvan. The grocery delivery service blew through $800 million, went public and then spectacularly imploded with a forced asset sale. But nearly 20 years later, food delivery has reached new levels of creativity, showing that even when technology companies fail, they still leave a legacy that can lead to success.

Today’s delivery services have used Webvan as a cautionary tale, avoiding the mistakes that brought it down. Webvan tried to sell high-quality foods at “Safeway prices.” Today’s delivery services are either crystal clear about what they’re delivering (think Blue Apron) or they let people choose their own level of price and quality by delivering directly from existing stores and restaurants (think Postmates).

Consumers now can buy virtually anything, from raw ingredients to six-course restaurant fare, with just a few taps on their smartphones. At the same time, the importance Americans put on convenience versus price has grown, and millennials are demanding round-the-clock delivery options. Then there are the new studies linking increased happiness to spending money to save time.

But for some consumers, access to fast, inexpensive delivery has become a quality-of-life issue. In Canada, remote villages depend on Amazon Prime for nonperishable food items. One Native group relies so heavily on Amazon Prime that they claim their village would fall into “pandemonium” if Amazon withdrew the service.

That’s also true of American communities that are underserved by grocery stores and restaurants. In fact, recognizing that online stores can be less expensive and easier to access, the USDA in January announced a pilot program to allow retail food stores to accept SNAP benefits (Supplemental Nutrition Assistance Program) through online transactions. That program should go live in seven states early next year.

Amazon eagerly volunteered to participate in the pilot program, and went a step further. Earlier this year, the behemoth started offering its Prime service at a moderate discount to customers receiving certain types of government aid. Prime membership usually costs $99 annually. But for low-income households, the service can be accessed for $5.99 a month — a $27 savings. Smartly, Walmart wants in on the delivery action — and the more the merrier, as increased competition in the marketplace will produce decidedly pro-consumer effects. (Ironically, Amazon’s grocery delivery service grew out of the ashes of Webvan.)

There’s still plenty of room for this market to grow. Experts peg online penetration of food delivery at roughly 1% despite more than a billion dollars in VC investments.

And the kinds of jobs these companies are creating pay better than any retail or restaurant jobs they might replace. According to a study by the Progressive Policy Institute, the e-commerce sector is growing faster than the retail sector is shrinking. And hourly wages in the digital sector are roughly 29% higher than wages in the physical sector.

The trajectory from Webvan’s demise to the excitement of today’s marketplace shows just how technology is changing our lives in unexpected ways. We need to continue to encourage tech entrepreneurs to start new businesses that can evolve and thrive. Because even when their ideas go bust, they can often lead to real changes that help make the world a better place.