Home Tech Internet Business Valuations Are Sky High, But The Sector Is Healthy

Internet Business Valuations Are Sky High, But The Sector Is Healthy

If you have been following LinkedIn since it was listed in the stock market in the United States, you will know that investors are betting that Internet stocks are the real deal now. Originally planned for $45, the stock got as much as $122.70 before it began to lose value. It has since settled around $78. Tekedia thinks that the stock will finally come down to $50 which is truly the right valuation for the company. It is still high as it is now.

 

Yet, what is interesting is that investors are laser focused on the stocks they put money.  In the Second Market, they want Facebook, Zynga, Twitter and Groupon and then ignore the thousands of other companies. The whole model is to value and indeed overvalue some selected companies that have real values. This is as Economist explained:

 

But trouble may be brewing out of sight: although 80% of publicly-listed tech companies are trading within their historical valuation ranges and recent IPOs are few in number, valuations in the private market are skyrocketing too. There is a lot of hype surrounding the upcoming IPOs of high-profile Internet companies such as Facebook (which is valued at around US$76bn, more than Boeing or Ford), Zynga, a virtual gaming company valued at around US$9bn, and Groupon, which sells online coupons to its subscribers and is valued at around US$15bn-20bn. By contrast, Twitter, a highly popular social-networking site also tipped for an IPO in the near future, is valued at around US$7.7bn, although it has yet to find a profitable business model.

 

Yet, it is very important to know that investors are not careless as they were in 2000s. They are picking winners in each sector. That model is what will prevent bubble. The rerun of the early 2000s is not coming because the investors are smarter.

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We think that any anticipation of Internet bubble is premature. What is happening in the industry is consolidation where few companies get all the attention and the investors focus to get some parts of them. And they go for the market leaders.

 

 

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