Dot-Com Bubble 2.0?

In recent news, we have all read article after article about newly formed technology companies going public or filing for IPOs. It is safe to say that there is an incredible buzz behind potential investment opportunities in many online companies. About a month ago, the professional networking site LinkedIn, had its IPO and saw its shares rise 80% on day one. This spectacular reception of the stock speaks nothing to LinkedIn’s ability to make money (though they did see profits soar over 200% from 2008-2010), but speaks volumes to how desperate investors are for the next big thing.

In a time where not even Bernanke himself can figure out what is going on with the economy, investors are trying everything possible in pursuit of better returns. But who can blame them? U.S. treasuries are paying close to nothing, and the S&P 500 has been all over the place. With everyone sharing the same sentiment, people can’t help but gossip about the possibilities of investing in popular web companies that are looking to go public. The companies people are most excited about include:

· Facebook

· LinkedIn

· Twitter

· Groupon - daily deal site

· Zynga - social game developer

· Hulu - online video service

It has been quoted that the investment environment is at a “frenzied level not seen since the late 1990’s dot-com bubble” (WSJ 6/29/11), and it is easy to see why. There are countless articles written about all of the above-listed companies, when half of them haven’t even filed to go public yet. LinkedIn is currently trading at $98.70 (up around 5% today), though is it only earning a mere $0.04 per share. That’s a PE ratio of a ridiculous 2,720.03!

At the end of the day, the only people who actually benefit from all of this hubbub are the Private Equity guys. A good example of this is GSV Capital Corp: they recently saw their shares rise 40% after purchasing 225,000 shares of Facebook (after valuing it at $70 billion). It was the Private Equity firms and Venture Capitalists who were able to make these internet companies what they are today.

Nobody can blame any of these companies for wanting to go public at a time like this. Myspace recently sold for a mere $35 million dollars last week! With technology CEOs looking for a big pay-day and investors desperate for something new, it seems that another dot-com bubble is inevitable.

-Sam