At the moment all of us can witness an extraordinary flurry in the investment and tech (IT or dot-com) markets. The success gained by global tech giants during the IPO and the breathtaking growth of the companies’ capitalization cannot but amaze and inspire investors. However, there are some concerns about whether the rapid growth of such tech giants as Facebook, Skype, Google and others can lead to another tech bubble, which in this case will seriously affect the entire global economy.
Investors’ losses in case the “dot-coms” collapse.
It is not a secret that the famous tech giants are very popular among investors. experts say that it is time to recollect the so-called “dot-com crisis” that took place in the very beginning of the century:
· Big hopes. At that time millions of common investors believed that the Internet can provide them with endless investment opportunities but they have to pay for their naivety.
· New companies. According to Wikipedia a dot-com company is a company that does most of its business on the Internet, usually through a website that uses the popular top-level domain, ".com". At that time numerous enthusiasts were concerned only about how to attract visitors to their websites. Other issues were secondary for them.
· Investors’ mistakes. The problem was that investors shared the mentioned illusions and were waiting for a brighter future for dot-coms while the owners and the staff were living in grand style.
· Extraordinary boom. The dot-com boom started in the USA where the stocks of internet companies occupied 10% of the equity market. Billions of dollars were invested in IT companies around the world. The climax was reached on March 10th 2000 when Nasdaq got to the top of 5142 pts. During the period of 1996 – 2000 Yahoo’s capitalization was multiplied by 87 times, eBay - by 13 times, Amazon – by 16 times.
· Total collapse. Suddenly the tech market collapsed – the tech bubble finally burst. Nasdaq declined below the previous year’s bottom. Most dot-coms went broke together with their investors. It took the U.S. economy a couple of years to recover.
Web.2.0 companies: investment boom.
Like 10-11 year ago, now we can see many investors getting increasingly interested in IT-companies while the market is as overheated as it was before the burst of the tech bubble the only difference is that now there are real tech giants with multi-billion capitals and turnovers:
1. The break-neck growth of LinkedIn’s stock. In May 2011 LinkedIn (a social network) managed to double its capital from $4,B up to $9B.
2. Skypе. Microsoft bought it for $8,5B.
3. Twitter. Since 2009 the net worth of Twitter (a social networking and microblogging service) has grown from $1B up to $7B!
4. Facebook. The biggest craze will probably take place in the 1st quarter of 2012 when Facebook, the world’s biggest social network, will make an IPO (initial public offering). In 2010 Facebook’s capitalization tripled, reaching $50B.
5. Brave expectations. Some financial analysts have already made brave forecast for Facebook’s future. Some of them say the social network’s capitalization will easily reach $100B. It is said that in the future Facebook will earn 20% of the net global earnings made on the Net.
6. Craze without borders. It was Facebook’s popularity that started this craze with dot-com companies around the world. China’s biggest social network called Renren is also getting ready for its own IPO (the expected profit in Nasdaq is $ 0,5B). Not so long ago the Russian-based Mail.ru Group earned $1B on its IPO, beating Yandex. This is the absolute record for Eastern Europe.
Assessing possible risks.
The unusual revival that attends any trading in the tech market obviously looks suspicious if to recollect the bubble burst in the tech market a decade ago. At that time everyone was trying to invest in dot-coms without having an idea of how they would be profiting from those investments. Now the situation looks the same, except that the investments are much more substantial:
· Playing on the verge. In reality, some of those dot-coms with multi-million audience are hard to monetize. Consequently those promising investors have to balance between no or small losses and insignificant profits. For example, in 2010 Skype (the turnover is $860M) lost $7M because very few users used extra (paid) services. The owners and investors of LinkedIn started gaining profits only in 2010 (as low as $15M+). Before that they had no profits and even suffered losses. In 2010 the annual turnover of Twitter was equal to $45M mainly at the expense of commercials. Last year the gross annual income of Facebook was $1.86B, which is relatively low in relation to its net capitalization of $50B and aspiration to reach $100B.
· Investment attractiveness. Investors keep being inspired by reassuring eMarketer’s forecasts, which promise that the dot-coms will be gaining more and more profits in the near future. According to it, in 2012 Facebook will earn up to $5.7B while Twitter will triple its earnings. But all these profits are just remains in comparison with the funds that have been invested in those dot-com projects.
· Déjà vu? We can see the same tech bubble expanding once again as the companies keeps feeding on investors’ money. When the bubble bursts the previous dot-com crisis may seem “nothing” in comparison with it. The online market is nearing the energy market in terms of turnover. That is why if the bubble bursts, the entire global economy will feel it, not to mention the huge losses the investors will suffer.
According to the Department of , the price of LinkedIn’s stock is in mid-term uptrend – wave C H8. By now the 61.8% Fibo level of resistance has been overcome. If the price manages to consolidate above the level it will get an opportunity to reach the next level at 76,4% - $ 107,46. A reversal can be considered only after the price breaks below the MF pivot and sloping channel (as shown below). It will indicate the formation of a bearish wave of the senior wave level.
_1147510688.jpg)
Skype, Facebook and Twitter are still getting ready for their IPO.
Market Leader and would be very grateful to you for participating in a survey. Please, visit the Academy’s forum and answer the question given below:
Is there a threat of a major collapse of dot-com companies?
· Yes, there is. This is another bubble.
· No, there isn’t. The market has a lot of perspectives.
· Your own opinion
