The recent batch of IPOs of online companies has me scratching my head over what in the world investors are thinking these days. The valuations these companies are getting are astronomical considering that very few are profitable and some don't have very strong competitive positions.
Zynga came public with about a $7 billion market cap. This for a company that makes its money primarily on Facebook, selling virtual stuff to users. Don't get me wrong, I like a good mindless game, my iPhone is full of them, but a $7 billion market cap for a company that doesn't sell anything real is insane.
Who knew networking could be so valuable, with LinkedIn
Now word has come out that Twitter has received a round of funding that values the company at $8.4 billion, despite having very little revenue.
Source: SEC filings and Yahoo! Finance. NM = not meaningful due to negative earnings. TTM = trailing 12 months.
The wild days of the Internet bubble appear to be on us again. Companies without clear paths to profitability are worth billions of dollars, the IPOs are coming fast and furious, and even the few profitable companies are trading at crazy multiples.
I'm sure one or two of these companies will survive, maybe even thrive. After all, even the Internet bubble left a few companies floating into the future. But with so many quality companies with quality earnings struggling in this market, I have to wonder just what Mr. Market is thinking when he is paying these high prices for high-risk Internet companies?
What's your opinion? Is the Internet IPO just hype or are these companies the future? Leave your thoughts in our comments section below.
Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.
The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Amazon.com, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.