The Wall Street Journal reports Twitter Inc. plans to go public at a value of $11 billion, without turning a profit. Venture capitalists just valued Pinterest Inc., which generates no revenue, at nearly $4 billion, and an even younger, revenue-deprived company, Snapchat Inc., is angling for a similar price tag.
"It isn't quite 1999, when dot-com companies with scant revenue made initial public offerings and tripled in price on their first days of trading. When that bubble popped in 2000, scores of companies went bust, and millions of small investors suffered losses".
"It isn't quite 1999, when dot-com companies with scant revenue made initial public offerings and tripled in price on their first days of trading. When that bubble popped in 2000, scores of companies went bust, and millions of small investors suffered losses".
"Now, shares of Internet companies are soaring again, and signs of pre-2000 exuberance can be seen in Silicon Valley and the nearby area. Home prices in San Francisco and surrounding counties rose more than 15% in the past year. Office rents in San Francisco are 23% above their 2008 peak.
Technology and finance veterans say this time is different,and it is. Companies going public are more mature, the leadership teams more seasoned, the business models more proven. Social networks such as Twitter and Pinterest are drafting off the success of Facebook Inc., which sports a market value of $126.5 billion, or about 70 times next year's expected earnings".
'But the current surge is accelerating, aided by some little-appreciated factors. Big companies are scarcely growing, and interest rates remain near zero, boosting zeal for investment opportunities in companies with high-growth potential. Moreover, a federal law enacted last year will allow startups to raise money from smaller investors, opening a vast new pool of potential funding".
"Now, shares of Internet companies are soaring again, and signs of pre-2000 exuberance can be seen in Silicon Valley and the nearby area. Home prices in San Francisco and surrounding counties rose more than 15% in the past year. Office rents in San Francisco are 23% above their 2008 peak.
Technology and finance veterans say this time is different, and it is. Companies going public are more mature, the leadership teams more seasoned, the business models more proven. Social networks such as Twitter and Pinterest are drafting off the success of Facebook Inc., which sports a market value of $126.5 billion, or about 70 times next year's expected earnings.
Tesla, which has reported one profitable quarter since going public in 2010, is valued at $20.6 billion, seven times its expected 2014 sales.
Netflix Chief Executive told investors in a letter this month that the video service's stock was benefiting from "euphoria" driven by "momentum" investors. Netflix shares have tripled this year.
By most measures, today's tech-stock mania falls well short of the dot-com era. Many of the companies going public have substantial revenue.
"The big difference now, is companies like LinkedIn, Twitter, Facebook have demonstrated an ability to generate sales, and with the exception of Twitter, profits," Mr. Ritter says. In the dot-com days, "there were all sorts of companies going public that were essentially startups."
But investor enthusiasm is filtering down to younger, less-proven companies today, too. Pinterest, an electronic-scrapbook service that began testing ads this month, said Wednesday that it had raised $225 million from venture-capital firms. Pinterest didn't need the money; the company said it hadn't spent any of the $200 million it raised in February when it was valued at $2.5 billion''.
The market of start ups is effervescent once again,the QE monetary policy makes interest rates so low and prod investors to take higher risks with less reward. But that may mean a sharp correction of the market cap of these companies when interest rates go up.
When the Fed started raising interest rates in late 1999, the Nasdaq bubble popped the following March.
"Another factor: Last year's Jumpstart Our Business Startups Act soon will make it easier for less-wealthy individual investors to back startups. Already, the law has made it easier for financiers to pool money from individuals.
Some people worry that the looser rules may end up hurting small investors. Lynn Turner, a former chief accountant for the Securities and Exchange Commission, says the most-successful venture capitalists back winners only about 20% of the time".
