The rocketing share prices of Linked In yesterday morning were perceived by some as the official start of a tech bubble that has been murmured about for months. Others, well, were buying up shares of Linked and pushing it up more than 100 percent on its first day in trading. Both the bulls and the bears have valid arguments, with the bulls sighting the last comparable IPO Google (GOOG) for an example for how a company can have an outrageous IPO without buckling under it later. For their part, bears insist the Linked In IPO sets a new standard for high prices on less valuable companies, simply because they fall into categories like “social media” or “mobile application”. Because of the amount of money that can be potentially made in investments of these nature, for instance Google, Baidu (BIDU) or for an earlier example, Amazon (AMZN) people are eager to believe in or speculate optimistically on the future of a company. Largely because as the shareprices of Linked in reveal, we don’t need any more tech bulls, we’ll take the side of the bears and discuss tech stocks that appear overvalued or have been given false boosts based on unfulfilled speculation.
We’ll start with Wall Street’s most popular topic right now.
According to Second Market, which an exchange that permits private investors to trade share prices of private companies, LinkedIns share prices were somewhere under $20 just a year ago. This morning, they were around $45. At peak trading today, those same shares were worth around $122. At its height, the company was trading somewhere around 43 times its revenue value or valued at $10.3 billion. Private investors had valued the company around 2.5 billion, meaning Wall Street, so eager to get a piece of the tech-pie stretched it well beyond reasonable limits. At close, up 109 percent for the day it was in the ballpark of 25 times forward revenue alongside an alarming multiple of earnings.
Cloud computing has been a Wall Street buzzword for a while now and much of the chatter has centered around Salesforce. Admittedly, according to its earnings Salesforce is doing well. Like LinkedIn, it seems like a solid company with a good business model, but whether that makes it worth of a share price of $135.81, is a different story. The company is trading at 181 times forward fiscal 2012 estimates. According to Zacks.com, it appears that despite guidance higher than analysts estimates, even the high number would indicate shares are trading at 100 times value.
Shares have been treading water recently but are up on the earnings report.
Having survived through the original dot-com bubble, Amazon has a fan-base of loyal investors and a bevy more confident that the company will continue to innovate. But getting into Amazon.com, so late in the game is expensive and the company, which cashed in with the Kindle, doesn’t seem to have any comparably great ideas in its pipeline. Amazon is currently trading around its 3-year high. Just because share prices are up; however, doesn’t mean earnings are. In fact, earning for the company are expected to decline 2 percent from the $2.53 this time last year. It’s P/E is 86.
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