Recent stock price drops at technology companies raise the question.
With the events this week involving two technology companies and the dropping in the value of there stock, some are now starting to ask the question as to whether we are head for another Internet Bubble which is on the verge of popping. The previous one ended in 2000 with a pop in all the large run up of IPO’s with inflated stock prices on earnings that had never been reported. It would appear that we are moving in that direction again as people are seeing dollar signs in IPO purchases just because of the fast run up of the companies. The Google IPO and rapid rise in the value of the stock seems to be leading the interest in Internet IPO stocks.
IPO’s are returning to being popular and everyone seems to be interested and wanting to get on board. Start ups are being very popular again, just as they were in the 1999-2000 period, everyone wants to get in on the ground floor and get rich quick. Though the companies have changed from what was being offered in the previous Internet Bubble, the general interest seems to be very much the same. Yet this time, it is all centered around Social Media. The Facebook lead up to the IPO shows just how interested people are in getting in on the IPO. Average citizens took large sums of money to be used in buying in to the stock. And there was no guarantee they would get the stock and many did not because of the interest.
But, with the recent IPO for Facebook and their 1st quarterly report, the stock has not been doing well. Some are saying that we are in for a coming Internet Bubble burst and to beware. Much was what we are seeing right now would tend to indicate some validity to those statements. You only have to take a look at Zynga, whose stock has gone down too much. Dropping close to 50% this past week does not show that IPO stocks are going to sustain over the long run.
There are some who point to a far different investing model now as compared to what was going on in 1999 and 2000. While that may be correct, the vast majority of what we are seeing is related to Social Media and there can only be so many of those in existence and survive. And few of the business models have a revenue stream to justify high valuations when they do an IPO. Yet, people are willing to invest in a coming IPO on Twitter just because of who they are.
If people jump on all these Social Media IPO’s just because they are associated with Social Media and there is a shift from Social Media to somethings else, there is going to be a huge crash on the valuations of the stocks for those companies. There has even been recent indications that Facebook’s popularity may be declining in the US and if correct, may be signalling a shift.
Even the Mootly Fool is questioning whether we are repeating the dot-com bust. And they may well be correct in their statement. The whole Social Media is an area which has not proven itself out for the long term in making money. And that is what stocks are supposed to be about. Facebook’s first quarterly company report as a public entity did not meet what some people expected and as such, the stock took a hit. Then there is news that Facebook purchased Instagram for $1 billion and it makes you wonder.
Instagram has not even been around for 2 years and yet it got an extremely high price. Facebook now has an expenditure to put on the books and Instagram’s future revenue will probably not justify the purchase price. It is these kinds of things which are happening which are causing a growing audience to question whether we are heading towards another Internet Bubble and burst. More then likely, we are already inside the Internet Bubble and the questions has become, how long before it breaks.
Even some of those individuals who where involved in the previous Internet Bubble are now warning of the coming bubble to anyone who is willing to listen to them. I am not someone who has a background in the financial areas, but did suffer from big loses in the previous burst of tech stocks. I did not go crazy on investing, but tried to pick what was considered proven companies. In the end, it did not matter.
This discussion about whether we are in for another Internet Bubble is going to continue much in the same was as it did in 1999-2000 until the evidence becomes too much to argue against. For now, I am viewing Social Media stocks as a possible Internet Bubble which will end up having far reaching impacts.