Internet stocks Frenzy !!!
So TWITTER finally priced its IPO much above its initial range … from earlier thought
price range of $17-$20, which it revised higher to $23-25 and finally priced it
even more aggressively at $26/shr. This double pump makes it a rare IPO that
boosted range and priced it above that range.
Back home, Zomato, a web-based restaurant search engine in India, said on Wednesday it had
raised $37 million from Sequoia Capital and Info Edge India Ltd to fund its expansion
in overseas markets. Before this InfoEdge had invested Rs 31 crore in Zomato
over three rounds of funding. Fourth round of funding in pretty quick
succession ??? … now values the five year old firm at INR 900 crores !!
Post its latest round of funding, Flipkart is now valued at INR 9000 crs or USD 1.5 bn.
Flipkart is now worth more than the total market cap of all 15 listed retail
companies, including Future Retail, Shoppers Stop etc. Filpkart’s business
model is a money guzzler. Unfortunately, little money seems to be coming out at
the other end. The only way PEs will get their money back will be through
listing…
We all have seen the craze in India’s recently
listed search engine firm JUST
DIAL. The stock has doubled since its IPO in June
this year and now trades at a staggering 20x FY14 sales and 70x FY14e profits
!!!
Just came across this blog which summarizes
the present euphoria in the internet stocks, worth a read :
Shouldn't Internet companies actually "make a
profit" at some point before being considered worth billions of
dollars? A lot of investors laugh when they look back at the foolishness
of the "Dotcom bubble" of the late 1990s, but the tech bubble that is
inflating right in front of our eyes today is actually far worse. For example,
what would you say if I told you that a seven-year-old company that has a long
history of not being profitable and that actually lost 64
million dollars last quarter is worth more than 13 billion dollars?
You would probably say that I was insane, but the company
that I have just described is Twitter and Wall Street is going crazy for it
right now. Please don't get me wrong - I actually love
Twitter. Twitter is a lot of fun, and it has had a huge impact on the
entire planet. But is it worth 13 billion dollars? Of course not.
When it comes to the Internet, what is hot today will
probably not be hot tomorrow.
Do you remember MySpace?
At one time, MySpace was considered to be the undisputed
king of social media. But then something better came along (Facebook) and
killed it.
It is important to keep in mind that Facebook did
not even exist ten years ago. Yes, almost everybody is using it
today, but will everybody still be using it a decade from now?
Maybe.
But the way that the financial markets are valuing these
firms can only be justified if they are going to make absolutely massive
profits for many decades to come.
Will Twitter eventually make a little bit of money?
Probably, as long as they get their act together.
In fact, Twitter should be making significant
amounts of money right now if it was being run correctly.
But will Twitter ever make 13 billion dollars?
No, that simply is not going to happen. But that is
what Wall Street says that Twitter is worth.
The utter foolishness that we are witnessing on Wall
Street right now is so similar to what we saw back in the late 1990s. It
is almost as if we have learned nothing from our past mistakes. These days I
keep having flashbacks of the Pets.com sock puppet. For those too young
to remember, the following is a brief summary from Investopedia about
what happened to Pets.com... It's impossible to think of the first Internet
era without thinking of the Pets.com sock puppet. He was everywhere and was
nearly as well-known as the Geico gecko is today.
That familiarity, in part, persuaded many
investors to lay down money in the company's February 2000 IPO (which was backed
by Amazon.com). Pets.com raised $82.5 million – but nine months later it
folded, due to major recurring losses. Part of the reason for that was
aggressive advertising, but the company also lost money on virtually every item
it sold. In the third quarter of 2000, Pets.com reported negative gross margins
of $277,000. (The second quarter had seen a $1.7 million margin loss.) That
same quarter (its last full quarter as an operating entity), the company lost
$21.7 million on $9.4 million in revenue.
As for the puppet, he went on to shill for BarNone, which
helps people with bad credit histories get car loans. He's still there today,
front and center on that website.
Everyone loves to laugh at the poor little sock puppet,
but the truth is that the tech bubble that is inflating right now is far worse
than the Dotcom bubble of the late 1990s. The following are 14 facts
about the current tech bubble that will blow your mind...
#1 In just a
few days, the Twitter IPO is expected to raise close to 2 billion
dollarseven though Twitter actually lost 64.6 million dollars last
quarter and has a long history of not being profitable.
#2 It is being
projected that after the IPO Twitter could have a market valuation ofmore than
13 billion dollars.
#3 Twitter is
not expected to make a profit until 2015 at the earliest.
#4 According to
CNBC, Pinterest is currently valued at 3.8 billion dollars even
though it has never earned a profit.
#5 Yahoo paid
more than a billion dollars for Tumblr even though Tumblr's revenues
are so small that Yahoo is not even required to report them on
financial statements.
#6 Snapchat, an
Internet service that allows people to send out messages that
"self-destruct", is supposedly worth 4 billion dollars.
But it actually has zero revenue coming in, and many believe that it
is essentially worthless as a money making enterprise.
#7 The stock of
Rocket Fuel, an online advertising company, is trading at about 60 dollars a
share and it has a market valuation of about 2 billion dollars even
though it has never made a profit.
#8 The stock of
local business review website Yelp is up 241 percent this year even
though it has never earned a quarterly profit.
#9 Fab.com just
raised 165 million dollars from investors even though it recently
laid off 44o employees.
#10 LinkedIn
stock has risen in price by 136 percent since the 2011 IPO, and it is
now supposedly worth more than 18 billion dollars.
#11 The head of
engineering at Twitter, Chris Fry, got a 10.3 million dollar pay
package when he joined Twitter last year.
#12 Facebook's
VP of engineering, Mike Schroepfer, earned 24.4 million dollars in
2011.
#13 Office rents
in San Francisco (where many of these tech companies are based) are now 23
percent higher than they were at the peak of the real estate market in
2008.
#14 Facebook
stock is up close to 140 percent over the past 12 months and the
company is now worth more than 120 billion dollars.
And I am certainly not the only one that is
concerned that we are repeating the mistakes of the late 1990s...
“When you look at valuations and look at the
lack of earnings and revenue, it seems to me much like the dot-com bubble,”
said Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc.
who helps oversee $10.2 billion. “This market looks a little frothy and Twitter
is the personification of a risky trade.”
In fact, as the Wall Street Journal recently noted, we have
seen some of these tech stocks crash more than once during the Internet age...
"It's fascinating to me that today's
mini-mania includes shares of Amazon, Netflix and Priceline that have
previously peaked and crashed before—in some cases they've peaked and crashed
twice before," says Darren Pollock, portfolio manager at Cheviot Value
Management. "Stocks like these have again captured the imagination of
speculators. We're skeptical that there is enough underlying intrinsic value to
many of the highfliers to support today's prices."
So how long will it be until the current tech bubble
implodes?
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