Tuesday 6 December 2016

Fears of new dotcom bubble

ANALYSIS

Published 17/08/2011 | 05:00

THE news that the Facebook stake owned by Bono's investment fund Elevation Partners has more than quadrupled in value in less than two years is good news for investors but will only add to fears of another 'technology bubble'.

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This summer has seen a host of internet and technology companies valued at astronomical sums, despite the fact that they are only a few years old and have little or no profits at the moment.

That has led to comparisons with the period from 1999 to 2001, when technology companies were the "sexy" investment and were deemed the future of finance.

Amazon, the online retailer, was one of the poster boys of that period, with its shareprice topping $106 in December 1999, even though the company had never made a profit. By April 2001, the share was worth $8.63.

Facebook is hugely profitable for investors like Elevation, which bought shares in the company relatively early. In Elevation's case, it started buying into Facebook when the company was valued at some $9m in November 2009.

Since then, the company has been caught up in a near feeding frenzy, with rumours that the company is planning to float itself on the stock market regularly spreading across trading floors worldwide.

In June last year it was worth $23bn. Now it is worth $65bn.

LinkedIn, a professional social networking site that makes a small annual profit, more than doubled in value on the first day it was on the stock market this summer.

In May, Microsoft paid $8.5bn for the online telecoms company Skype, even though the company is loss-making and had never been sold for more than $2bn before.

So should the man on the street be looking seriously at putting money into technology companies? Matt Morris of the London financial house Baigrie Davies, thinks not.

"Although the sale of social media giants makes huge sums of money for the folk on Wall Street, we would be very sceptical of investing in a company whose value is based on excessive multiples of its revenue. It's not a sound place for most investors' money."

Irish Independent

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