Friday, April 15, 2011

Morning Call: Another Internet bubble is coming

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:

Do you think we are in another internet/social media bubble? Why?

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:

I don't think so.

People are saying there are bubbles when valuing companies like Facebook and Groupon. I would agree with those who are saying that the $50 billion valuation on FB is not trustworthy because they couldn't see the real value of the company and how IBs did the valuation. But nobody can argue about anything simply because they don't see the reason by saying there's no reason.

Different from the dot-com bubble ends in 2001, the current highly valued social media/internet companies such as FB and Groupon have their soundable business model built and running well. Their revenue expectations are also based on the number of users that real exist. And different from the 2001 bubble, which was mostly caused by public investors' craziness that didn't even have any supportive existing numbers.

At last, as private companies, their valuations wouldn't be overvalued ridiculously like people are worrying now.

Personally, I am sort of in support of the overpricing concern for Internet companies; as to whether another internet/social media bubble is brewing or not, still need more time to observe how things are going on in the market as well as the investors’ behaviors...

Data is below:

Facebook's valuation recently rose to $65 billion after private equity firm General Atlantic purchased 2.5 million shares, before surging to $85 billion on Second Market. It's not the only pre-IPO site with a billion dollar tag. Daily deals site Groupon is said to be valued at as high as $25 billion, while micro-messaging network Twitter's valuation just climbed to $7.8 billion.

Besides, as the billionaire stock picker and takeover specialist, Warren Buffett also commented recently that investors would better be wary of the high valuations circulating for social networking sites as some of the industry’s biggest startups prepare for initial share sales. "Most of them will be overpriced,” Buffett said. "It's extremely difficult to value social- networking-site companies. Some will be huge winners, which will make up for the rest."


my argument:
I do believe there is another bubble in the making. But when is there not one. oil,microchips,computers,dotcom,realestate... However, the current changte we are seeing right now in the market, as in the markets getting stronger is not a direct result of the social media/technology sector hyper but a genuine increase in consumer confidence and spending.
Two articles presenting two different views, a good read:
Yes, this is a bubble:

I like the above link. It breaks the bubbles into time frams. And then it goes into our cuurent expected one. Overall, I do believe that we are going to have our next bubble in social media more than not. When I don't know. If I do know I will make a lot of money. All I can say is that the symptomes of a bubble are there. Higher valuations for business with almost zero revenue and urgent IPOs. And people are running to grap their share for these IPOs based on unjustiftable valuation. What else do we need of evidence. However, people never learn from their emotion. We had dot bubble not a while a go.

This doesn't feel like the same type of a bubble which was created during the dot com era. Unlike the internet boom when money was pouring in due to speculation and sketchy valuations, 2011 has turned out to be one where valuations are looked at more closely. Facebook has a $65B valuation and for many that seems absurdly for a firm that hasn't gone public yet. I can understand the valuation and to some extent question it, but the fact remains that venture capital firms are not funding small start-ups run by Joe Blow, but are putting their money behind who businessmen who have a fundamental standing in the public eye and whose products are monumental in changing the landscape of society.

Yes...there are the so called "app" firms. These firms supply apps for Apple and Androids phones and many have received funding without having any indication if the app will become a platform. Sure, we can state that apps are much like computer software these days because much like computers, smartphones aren't going anywhere and will require new and updated software to feed the need of the customers. What percentage of the upcoming apps receive ludicrous funding? That I don't know and need to look more into before I can make a concrete stance on this comment.

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