I, being an Indian (like the every sixth person in the world), will have to face the aftermath of everything that happens in US of A. Be it the latest of the technology (i-phones, BBs...) or the financial products (CDOs, CMOs, ABSs…). So we have to closely watch what USA and its people are after, to estimate the "next big thing" that can alter our lives (No pun intended over here). No doubt USA is still number 1 consumer of the world and everyone, right from Mexico to Japan would be happy to serve USAites. "This we already know. So what's your point?" Exactly. The emergence of second wave of dot-com companies is the new area of concern.
Taking cue from the Thursday listing of LinkedIn, one of the major professional networking sites brought an upheaval among the investors. The share price increased dramatically from its listing price of USD 45 to USD 122.70 before settling at USD 94.25. One Friday it slipped 1.23% to reach 93.09. So, a good return of approximately 110 percent in 2 days. "This company is great!" Come on. Let's look at some of the fundamentals. LinkedIn had an pre-ipo valuation of around USD 4.3 billion which post-ipo has shot up to USD 8.8 billion, which is around 37 times its revenues last year. The tangible book-value per share is around USD 3.38 with slowing revenue growth and almost zero projected profits. LinkedIn's PE ratio is astronomical (554) compared with its peers Google and Apple (~15). Few differences from the last dot-com bubble are:
Established revenue models: Though marginal compared to the valuation, LinkedIn earned a profit of USD 15.4 million on revenue of USD 243.1 million.
No flood of companies: There are a handful (less than 10) of companies which are in the process of getting such investor-attraction as LinkedIn did.
This would bring the case in point. After a good response for LinkedIn (a dot-com company), will the implied valuation of USD 79.4 billion for Facebook and USD 7.2 billion for Twitter be justified? Will Microsoft be able to justify its recent buy of Skype for USD 8.5 billion?
Drawing comparisons with the last dot-com bubble burst, Netscape on its listing day (Aug 9, 1995) rose from USD 28 to USD 58.25 or 108 percent. Do you smell a rat here?