The newest brigade of web 2.0 stocks has been causing a stir on Wall Street as investment talking heads continue to debate the existence of a bubble. These stocks; however, are not the only ones worthy of concern of late. Shifting conditions and business development decisions are impacting the industry in a way that could negatively impact the share prices of the old guard.
Among the stocks in question is Amazon (AMZN). Shares of the internet retailer are looking bloated after their recent rally and are now facing a bevy of new challenged in the form of higher sales taxes from the weakened California government. At 90x earning, the current sale price is still appealing to investors who are comfortable with paying steep prices for tech stocks with a history of stability. There is a trust that their continued growth trajectory will hold up but recent changes threaten to tarnish their current record . Secure in strong past results, investors have seemingly dismissed the new stipulations, which would damage profits in a way that Amazon doesn't necessarily have the power to correct. The sales taxes would demand Amazon to pay the same 8 percent sales tax demanded of brick and mortar stores. The result of this could be earnings that are weaker for the quarter and share prices that fall beneath their current levels.
Netflix (NFLX) - Supposing that Netflix is about to tumble is a popular position to take right now. There had been talk of Netflix falling into a permanent decline several months ago, before it announced plans to extend itself internationally. That announcement led shares into a massive rally, reversed losses and brought the share up to recent peaks. The rumors; however, are back and this time it looks like investors should take them seriously. The most recent rise led share prices to a level that will be difficult to maintain, especially given that Netflix is switching up its tried and true structure. The company announced it would increase prices by around 60 percent and leave the DVD business behind in favor of pure internet steaming. While the transition may be cost-effective for Netflix it will likely also result in lost users who will be opposed to spending more and getting less. At 85x earnings, it may be time to sell.
LinkedIn (LNKD) - The explosion of LinkedIn's IPO could be compared to patient zero in what is considered the tech bubble. Trading at 1,100 times earnings, the likelihood that LinkedIn will grow or produce results in line with expectations is slim. While the stock still has a chance to ascend beyond its current levels, investment firms continue to promote shares to their clients, earnings reports will be sorely disappointing for investors. The company lacks the broad appeal of facebook and while many people HAVE LinkedIn accounts, there are far fewer who are actively engaged in their profiles, leaving less room for Ad revenue.
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