Analysts are beginning to wonder, perhaps too late, whether Facebook's IPO will cause tech bubble 2.0? The tech industry has been one of the most sought-after sectors since the New Year, and the prospect of a soon-to-be debuted IPO is leaving some investors drooling in anticipation.
But why? Haven't we all been down that road before? And does anybody remember Myspace? Could Facebook just be a passing fad like any other?
The hype and concern is probably best summarized by Richard Harris, Chief Executive at Port Shelter Investment Management: "It reminds me of the huge dotcom bubble and this does seem to be harking back to the days of craziness where valuations are really high. But Facebook is a darling; everybody loves it, all the kids are on it and that's one of the reasons we're looking at valuations like this."
Facebook's IPO expected valuation is between $75 billion and $100 billion, one of the largest IPOs in U.S. history. But as Kapitall mentioned a few days ago, its operating margin is comparatively slim to other technology companies.
"It produces a lot of interest, a lot of heat and life but really has no real products and where revenues are relatively thin it does seem a tough valuation," says Harris.
Because of Facebook's prominent role, its IPO could set somewhat of a precedent for the social media industry. If it disappoints, some suspect it could have an interestingly negative effect on investor sentiment toward the entire industry's valuations.
Business section: Investing ideas
If another tech bubble is about to burst, we were wondering which tech companies might be able to ride out the storm.
For ideas, we created a screen of large-cap tech companies that are more profitable than their industry peers based on trailing-12-month (TTM) gross, operating, and pre-tax margins.
If the tech industry turns sour, do you think these names will still outperform? (Click here to access free, interactive tools to analyze these ideas.)
3. BCE: Provides wireline voice and wireless communications services, Internet access, data services, and video services to residential, business, and wholesale customers in Canada. TTM gross margin at 54.46% vs. industry average at 49.06%. TTM operating margin at 22.27% vs. industry average at 13.18%. TTM pre-tax margin at 16.53% vs. industry average at 10.17%.
4. Vivo Participacoes: TTM gross margin at 62.97% vs. industry average at 49.06%. TTM operating margin at 17.76% vs. industry average at 13.18%. TTM pre-tax margin at 18.82% vs. industry average at 10.17%.
5. American Tower: Operates as a wireless and broadcast communications infrastructure company. TTM gross margin at 72.6% vs. industry average at 39.68%. TTM operating margin at 37.69% vs. industry average at 37.26%. TTM pre-tax margin at 20.71% vs. industry average at 15.12%.
7. Analog Devices
9. Cerner: Designs, develops, markets, installs, hosts, and supports health care information technology, health care devices, and content solutions for health care organizations and consumers worldwide. TTM gross margin at 47.02% vs. industry average at 45.66%. TTM operating margin at 20.38% vs. industry average at 13.63%. TTM pre-tax margin at 20.8% vs. industry average at 11.53%.
10. OYO Geospace: Engages in designing and manufacturing instruments and equipments used in the acquisition and processing of seismic data; and in the characterization and monitoring of producing oil and gas reservoirs. TTM gross margin at 46.92% vs. industry average at 34.85%. TTM operating margin at 25.67% vs. industry average at 18.17%. TTM pre-tax margin at 25.8% vs. industry average at 16.16%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above.
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