Facebook, Twitter valuations may show a new tech bubble

Banks pouring money into technology funds, wealthy clients and institutions clamoring to get pieces of startups, expectations of stock market debuts building – as Wall Street’s machinery kicks into second gear, some investors with memories of the Internet bust a decade earlier are wondering whether this sudden burst of activity spells danger for the industry once again.

With all this exuberance, valuations are soaring. Investments in Facebook and Zynga have more than quintupled the implied worth of each company in the last two years. The social shopping site Groupon is said to be considering an initial public offering that would value the company at $25 billion. Less than a year ago, the company was valued at $1.4 billion.

“I worry that investors think every social company will be as good as Facebook,” said Roger McNamee, a managing director of Elevation Partners and an investor in Facebook, who co-founded the multibillion-dollar private equity fund Silver Lake Partners at the height of the boom. “You have an attractive set of companies right now, but it would be surprising if the next wave of social companies had as much impact as the first.”

Funds set up by Goldman and JPMorgan Chase have invested in Internet startups like Facebook and Twitter or in funds with stakes in those startups. Even the mutual fund giants Fidelity Investments and T. Rowe Price have stepped up their efforts, placing large bets on companies like Groupon and Zynga.

Thomas Weisel, founder of an investment bank called the Thomas Weisel Partners Group that prospered in the first Internet boom, says he is “astounded” by the amount of money now flooding the markets.

“I think it’s much greater today,” he said. “The pools of capital that are looking at these Internet companies are far greater today than what you had in 2000.”Yet there are notable differences between the turn-of-the-century dot-com boom and now. For one, the stock market is not glutted with offerings. In 1999, there were 308 technology IPOs, making up about half of that year’s offerings, according to data from Morgan Stanley. In 2010, there were just 20 technology IPOs, based on Thomson Reuters data.

More important, the tech startups that have attracted so much interest from investors have real businesses – not just eyeballs and clicks. Companies like Facebook have fast-growing revenue. Groupon, which has been profitable since June 2009, is on track to take in billions in revenue this year. And since 1999, when 248 million people were online (less than 5 percent of the world’s population), broadband Internet and personal computing have become mainstream. About one in three people are online, or roughly 2 billion users, according to data from Internet World Stats, a website that compiles such numbers.

“In those days, you had tiny, little companies going public that hardly had a business plan,” Stefan Nagel, associate finance professor at Stanford University, said. “And now you’re talking about only a few companies – companies that are already global and with revenue.”

Facebook may hire former Obama spokesman

Facebook is in talks to hire Robert Gibbs, President Barack Obama’s former White House press secretary, for a senior role in helping manage the company’s communications, people briefed on the negotiations said.

Facebook is seeking out Gibbs ahead of an initial public offering planned for early 2012, these people said. The talks are still at an early stage and no formal offer has been made, these people said, warning that it remained possible the discussions could collapse.

©2011 The New York
Times News Service