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.