Value of Internet Companies – Hype v Reality

July 20, 2011 at 12:31 pm
filed under general online business news
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Hype v Reality?

As internet companies form a non-orderly queue to register an Initial Public Offering (that is first sale of stock to the public) some claim we have entered into a new tech bubble. They justify the claim by citing recent valuations of Facebook, Linked-In and Groupon and warn from this that investors should not assume that every big internet company that goes public will be a success. As for the public, as more and more money pours in on the back of an investment opportunity of a lifetime ‘impulse’, prices rise higher and higher until the valuation becomes unrecognisable from the original value. The fear that valuations are simply backed up by hype and most will decrease over the coming years, leaving just a few winners, is the main critical standpoint.

Opponents stress that to hark back to 2001 dot.com crash would be putting forward an invalid argument given that so much has changed within internet technology since the dot.com crash. The most important change being that the market is now atleast four times bigger than it was in the late nighties – it is estimated that over 2BILLION people worldwide now use the internet, and mainly via Broadband connection. Added to that astounding figure is the fact that cost of running an application has reduced dramatically and that programming skills have advanced considerably.
With internet businesses taking over the supply of radio, film, music and books the logic behind technology companies trading at Price-Earnings multiples of between 15 and 25 times seems to some to be wholly justified, and in fact, compared to industrial stocks, stocks in technology are currently trading much lower.

So, what do you think? Is this talk of a new tech bubble really justified?

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Value of Internet Companies – Hype v Reality?

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