INTERNET IPO’S AND .COM MANIA, AGAIN?
LinkedIn just went public last week and the stock immediately more than doubled. This is just one of many highly publicized IPO’s (initial public offerings) that is going to happen over the next couple of years for Internet companies and I get the feeling that it is sort of a frenzy right now. LinkedIn stock was offered at $45.00 per share, opened at $83, and at one time during the first day went all the way up to $122 before closing at $94.24. This is all for a company that won’t even be profitable in 2011!
It appears to me that this is sort of a replay of the late 1990′s to 2000 when all the .com stocks were going through the roof until their bubble burst. Many of those companies are not even around anymore and a lot of people lost money when they paid way too much for those stocks just because of the hype. After LinkedIn we will see IPO’s from Groupon, Facebook, Rovio Mobile (Angry Birds), and maybe Twitter and they are all going to get a LOT of attention from the business media.
High profile initial public offerings like LinkedIn get so much attention that new investors become interested when they see it being talked about on the news. They might hear stories mentioning the Google IPO in 2004 where it was priced at $85 per share and today sits at over $500. Google even got into the $700′s at one time and who doesn’t want a piece of a stock like that? This is the kind of hype that suddenly gets people trying to learn how to buy stocks so they don’t miss out on these “opportunities”.
But buying a stock like LinkedIn is extremely risky since it isn’t a profitable company yet and all this is speculation on how well they MIGHT do in the future. You are paying real money (and a lot of it) for a company and business model that hasn’t really been tested or proven. While LinkedIn seems to be the place professionals go to network now, no one knows how successful they can be or how much money they can make. It’s Internet speculation all over again and that means RISK.
The problem with the whole Internet arena is that it is all still so new and changing everyday. Remember MySpace? If they had had an IPO when they were hot it would have probably done well too. But they disappeared and are largely forgotten with the emergence of Facebook. Who’s to say that won’t happen with LinkedIn if someone figures out how to do it better?
Internet companies are relatively easy to start compared to a brick and mortar business. It seems that the barrier to entry is much lower than it is in the “real” world and that means competition can creep up quickly. For my money, I am staying away from this type of Internet stock because there is too much risk. It would be nice to double my money on a stock but I am not comfortable with all the hype that can disappear quickly if the company doesn’t deliver results.
