July 8, 2011
The Internet was still novel, if not new, and more people were getting on board daily. It was considered certain that massive profits would follow, even if there were few profits in evidence at the time. Wall Street was partying in 1999, raking in millions for technology firms issuing stock and for their underwriters. By March of 2000, the bubble had popped, and the markets began a two-year decline that would see the NASDAQ Composite, an index stuffed with tech companies, down more than 80%.
Some of those newly-hatch IPOs, like Pets.com, didn't survive the bursting of the Dot-com Bubble, as it became known. Other once-promising firms still exist, but are worth small fractions of their original price. Sycamore Networks is a good example. It went public in late 1999 and ended its first day with a valuation of $14 billion. Today, twelve years later, you could buy the entire company for $650 million, about a nickel on the dollar of that first-day price.
I am put in mind of all this by reading a story today about Twitter and their current value, and all the will-they-won't-they-go-public chatter. The NY Times reports Twitter is worth $8 billion despite having sales of only $200 million (that's 40 times sales) and being "close to profitability." The same article mentions that online game company Zynga is expected to go public soon at a valuation of $20 billion - 33 times sales and over 200 times earnings. By comparison, Exxon Mobil sells for just over 1 x sales and about 10 x earnings. Not high-tech enough? Apple sells for 4 x and 15 x, and Google for 6 x and 20 x.
Welcome back to the tech funhouse.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).