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The Next Tech Bubble?

4 May 2011 13 Comments

Tech land has already had a meteoric rise.  Look no further than the likes of companies like Apple and Amazon which have seen huge increases in share price and market cap.  The most interesting wave, however, of tech news might not even have materialized yet.

The most anticipated companies for possible investors aren’t even trading in the public markets yet.  Who am I talking about?  Facebook, LinkedIn, Twitter, Groupon, etc.  These are the companies that investors are psyched to get in on.

RenRen (called the Facebook of China) has gone public on the NYSE – of course at a very high valuation.  LinkedIn is about to go public under the symbol LNKD.  Also, Pandora Music is said to be going public under the one-letter ticket of “P”.

No IPO will be as big as Facebook though and for good reason.  Of all the “new” tech companies that I’ve mentioned here, there are really none that I’d invest in – especially when you think about the insane valuations that they’re sure to debut with.  Unlike the last tech bubble, this wave of tech companies really don’t offer much other than some consumer fads.  Groupon?  Please.  The competition is already heating up in this space and how many “local deals” companies can you have?  I’ll pass.  At least the last tech bubble saw innovation that produced increased productivity in many cases.

Facebook at least has a serious competitive advantage in that it has a closed network of 600 million something global users.  It’s essentially a mini-internet owned by one company.  Even so, technology moves so fast.  In 20 years, will Facebook still dominate the web landscape?  I’d probably bet not.

It’s so tough to make long-term investments in tech companies like these.  The landscape changes so fast.  The valuations are insane and the earnings track record is minimal at best.  Plus, none of these will likely pay dividends in the name of “growth” so the only way you make money is by trading it.

I love sites like Facebook and Pandora, but I won’t be buying the stock when it comes available.  I’ll stick to companies that produce and sell a product that we needed 20 years ago and will need 20 years from now.  Tech land is fun and sexy, but hard to make any sound long-term investments in.

The Old Guard

I’ve been amazed at the run of some of the companies that have been around a little while such as Netflix (NFLX), Amazon.com (AMZN), and Priceline.com (PCLN).  No, I don’t like any of these companies, but it’s also pretty tough to short them.

I could see a scenario play out where this new wave of tech companies IPO and push the tech sector to astronomical heights which might warrant some short positions.  I’ll continue to monitor and update as I see it.

13 Comments »

  • Bowmanave said:

    We may see a tech bubble occur with all the interest and investments companies are starting to make with Tablets. A lot of companies are betting on tablets and hoping and throwing money at their version.

  • LDub said:

    Interesting and timely topic. If you look at LinkedIn specifically, notice that last year’s earnings were roughly $15 million. When the stock had its IPO, the valuation of the company (based upon its share price) was hovering at nearly $14 billion. So a company can be worth almost a thousand times its annual earnings?! Scary! I’m feeling a flashback to the 1990s tech bubble fiasco coming on.

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    The competition is already heating up in this space and how many “local deals” companies can you have? I’ll pass. At least the last tech bubble saw innovation that produced increased productivity in many cases. Iphone 5 news

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