Every day, we hear from an insane IPO, offer or purchase in the sector of Technology. It seems like each time, bids get higher and higher, and the equities have incredibly large capitalizations. There are plenty of examples, such as the acquisition of Whatsapp by Facebook for 22 billion dollars, or the recent IPO of Alibaba, valorising the company to 234 billion dollars, one of the world’s largest publicly traded company.
This observation leads to a fundamental question, are those market behaviours justified, or are we just completely inside a new tech and internet bubble, like in the 2000’s ?
Let’s have a look at social networks such as FB, LNKD and TWTR. They respectively weight today 213, 27 and 24 Billion dollars. While Facebook has a global revenue stream from advertising that permitted them to generate a net revenue of 2.76B over the last four quarters, Linkedin lost 15M and Twitter 926M on the same time period. What is justifying P/E of 72 for Facebook and capitalizations comparable to highly profitable automobile brands such as AUDI for TWTR and LNKD, while there is uncertainty about any further revenue. There is certainly speculative issues around the so called big data. Big data is a generic term for the collection and use of huge amount of complex data on the system’s users. Moreover, I believe that the Facebook success story has created a new wave of investors, believing that this story will repeat. Venture Capitalism is at his edge, all the society seems to be in the venture mood, inspired by the Zuckerberg. People create start-ups without any revenue perspective and profit of this general feeling and of the possible payout of a purchase (others, as snapchat, decide not to take advantage of the opportunity).
There are a lot of other tech related companies such as TSLA, AMZN, NFLX and BABA that seem to be overvalued. Tesla is a really innovative, even visionary company. They are producing and selling electric cars, but is it justifying a 28B market cap for a loss of 252M over one year ? Comparing this companies earnings, balance sheet and market perspectives with large german car manufacturers such as Daimler AG, Audi AG or Porsche will probably make you doubt. Amazon is also an interesting case, it lost 215M over a year and never topped revenues justifying its peak to a insane 190B, one of world’s largest caps.
More generally, it is interesting to compare the NASDAQ composite’s level today to its level during the dot-com bubble. The interesting fact is that this index is highly weighted with technology and internet.
There are still companies that have an high potential for the long term investment with realistic prices. We can cite QCOM, GOOG, CSCO and AAPL.
I am open to any discussion or suggestion of strategies to take advantage of this situation !
[avatar user=”melvinkian” size=”original” align=”left” link=”mailto:email@example.com”]Melvin Kianmanesh Rad[/avatar]
Melvin Kianmanesh Rad