Advertisement

Archive for Friday, June 17, 2011

Put a cork in Internet bubble talk — for now

June 17, 2011

Advertisement

— It’s starting to feel like a 1999 flashback. Internet companies — some of them profitable, some not — sense a golden opportunity and are lining up to go public this year.

But here’s something to keep in mind as the latest case of Internet fever grips Wall Street: It’s still nowhere close to the giddy days of the dot-com boom, when investors bought stocks as impulsively as lottery tickets. Technology stocks today are the cheapest in more than nine years, at least judging by one benchmark for appraising companies.

This year could yield the most initial public offerings of technology stocks since 2000. But the venture capitalists who bankroll high-tech startups aren’t pouring money into the Internet like they once did. And even rapidly growing Internet companies LinkedIn Corp. and Pandora Media Inc. have lost some of their luster after dazzling investors when they went public in recent weeks.

All those factors signal that cooler heads are prevailing, especially with the global economy on shaky ground.

So far this year, 28 of the 74 IPOs completed in the U.S. have been by technology companies, according to IPO investment advisory firm Renaissance Capital. If, as expected, another 31 tech IPOs are completed by the end this year, it will be the most from the sector since 2000.

The growing enthusiasm for Internet services reflects how far the Internet has come since the dot-com boom. An estimated 2 billion people worldwide have Web access now, about eight times as many as in 2000. High-speed Internet connections have become common, turning the Web into an entertainment center as well as an information hub. And mobile devices have made it possible to stay connected from almost anywhere at any time.

“I don’t see a bubble,” venture capitalist Marc Andreessen, best known as founder of the pioneering Web browser Netscape, told The Associated Press in March. Andreessen has investments scattered all over the Internet, mostly in companies that are steadily increasing their revenue. Some of them are even profitable, virtually unheard of during the late 1990s. That’s why he thinks it’s logical for more money to be flowing into one of the most promising parts of the U.S. economy.

“I think people are confusing success with a bubble,” Andreessen said. “Maybe stuff is just working.”

But well-established technology companies, including many that helped build the Internet into what it is today, have fallen out of favor. To gauge just how far, consider the price-to-earnings, or P/E, ratio of technology stocks in the bellwether Standard & Poor’s 500 index.

Comments

Use the comment form below to begin a discussion about this content.

Commenting has been disabled for this item.