Yelp: Is This Dot Com Bubble Part Deux?

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Beyond 2000: Facebook. Twitter. Yelp. Spotify. Notice something about these names?

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Well apart from the fact these internet firms currently hold million, and in some cases, billion dollar valuations, they all have one other massive commonality. 

Five years ago no one had heard of these newbie internet companies. Today, they have the likes of Google and Microsoft vying for them. They are also attracting the attention of investors keen to jump on the internet gravy train. 

A total of about $7 billion in orders for Facebook shares poured in, when the social network’s share sale was first announced by Goldman Sachs in January last, according to sources close to the deal.  And this was just from outside the US alone.

Since it is still owned by private investors, its profit numbers are not well known although some analysts believe Mark Zuckerberg’s company revenue “could be as much as $2 billion, fueled by advertising growth” for last year according to the Wall Street Journal. 

Facebook, which has been associated with a $60 billion market valuation figure has 600 million users and growing.

Twitter, in a similar vein, has some market analysts suggesting a $10bn price although it has yet to even turn a profit and turned commercial in just April last year, has apparently received backing of $360 million from private investors. 

LinkedIn, the work networking site announced its intention for an initial public offering (IPO) in January, set to happen in the coming months. 

LinkedIn which has 90 million users, turned a modest profit of USD$1.85 million on revenue of $161m in the first 9 months of 2010.  

All are showing relatively small profits considering the current values being placed on them by investors.  Even if Facebook did make $2bn in revenue its market valuation is 25 times that, which seems extremely high, leading to some wondering if a social bubble, built on the back of these much loved sites is on the way?

 

Jeremy Stoppelman, CEO of Yelp, a global reviews site and internet star performer, beleives this might be the case. 

“In 1999 and 2000, those were early stage companies with small teams, which had an idea which they were trying to execute on, yet they were getting multimillion-dollar valuations.

“That’s clearly not happening now. The companies getting huge valuations pre-IPO do have revenues.

But are the valuations high? There’s no question.” 

“If we’re in a bubble, we’re at the beginning of it,” Stoppelman told The Times.    

However, some fund managers with knowledge of the bottom line at some of the leading Silicon Valley tech houses feel differently and reject talk of a bubble.

“It is night and day compared to 10 years ago,” says Barry Mills, the manager of the $400 million Dreyfus Technology Growth fund. 

 

“These business models are real. The revenues are real, and the cash flows are real,” he insists.

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