Is a Bubble Brewing in the Internet Sector?

Wednesday, 30 Oct 2013 08:18 AM

By Dan Weil

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The market for Internet companies is heating up again, leading some commentators to wonder whether things have gone too far.

Twitter, which has earned no profits, plans an initial public offering (IPO) valuing it at $11 billion, The Wall Street Journal notes. Pinterest, a photo-sharing site that doesn't even have any revenue yet, was valued at $3.8 billion in recent venture capital investments.

"It's gotten pretty frothy," Daniel Cole, senior portfolio manager at Manulife Asset Management, told The Wall Street Journal. He has participated in some of the soaring IPOs.

Editor’s Note:
Weird Trick Adds $1,000 to Your Social Security Checks

For example, he bought shares of Rocket Fuel Inc., an Internet advertising agency that went public last month, at $29 a share. The stock closed at $56.00 Tuesday.

To be sure, things are different from 1999, when the Internet market peaked before crashing, The Journal explains.

"The big difference now, is companies like LinkedIn, Twitter, Facebook have demonstrated an ability to generate sales, and with the exception of Twitter, profits," University of Florida professor Jay Ritter, an IPO expert, tells the paper.

Back in the 1990s, "there were all sorts of companies going public that were essentially startups," he explains.

The average tech company to go public this year has been in business for 13 years, while the average age for a tech company going public in 1999 was four years.

In the end, of course, it's in the eye of the beholder whether investors in these companies are overpaying.

"It depends on the glasses you’re wearing whether these investments are too high," Mark Leslie, a managing partner of venture firm, Leslie Ventures and a lecturer at Stanford Business School, tells The New York Times.

Editor’s Note: Weird Trick Adds $1,000 to Your Social Security Checks

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