By Michael Liedtke
Associated Press
Posted: 10/02/2013
10:14:28 AM PDT |
Updated: about 12 hours
ago
SAN FRANCISCO -- Internet stocks are heating up again, just as
Twitter is preparing
to turn up the temperature with its highly anticipated IPO.
Consider what's happened in the past month: The once-scorned stocks of
Netflix (
NFLX)
and
Facebook have
soared to new highs;
Yahoo's (
YHOO)
long-languishing stock has regained its vigor and surpassed $34 for the first
time in nearly six years; enamored investors just poured more than $1.7 billion
into secondary stock offerings by LinkedIn and Pandora Media; and
Priceline.com's stock recently broke $1,000, catapulting past its peak reached
in 1999 during the dot-com boom.
"There is great demand right now to invest in companies that could be
powering the future, but it's a window of opportunity that won't last forever,"
BGC Financial analyst Colin Gillis said.
As hot as some Internet stocks are, the fervor is nothing like it was in the
late 1990s when investors minted dozens of unprofitable companies with rich
market values.
"The difference is that investors today are investing on value rather than on
emotion and hype, as was the case in 1998 to 2000," said Jeff Corbin, CEO of
investor relations consultant KCSA Strategic Communications.
Many of today's investors are judging Internet companies on their individual
merits and prospects for growth. "Back then," Corbin said, "just by including
the word 'Internet' in a company description or name gave rise to a multimillion
if not billion-dollar valuation."
Dan Appelman, 54, is a longtime investor in technology who views the current
run-up in Internet stocks as a reflection of the ever-expanding role online
services play in people's lives. "The Internet is everywhere now, and that
wasn't the case in 2000," Appelman said. "It has become like electricity or
plumbing."
Twitter couldn't have chosen a better moment to join the party. The timing
proved to be ideal for recent IPOs by Rocket Fuel, a Redwood City company that
uses artificial intelligence software to distribute digital ads, and FireEye, a
Milpitas-based maker of computer security software. The stocks of both Silicon
Valley companies nearly doubled in their Sept. 20 trading debuts.
Twitter hasn't set a timetable for its IPO since announcing its plans to go
public in a Sept. 12 tweet. Most analysts expect the San Francisco company to
complete the process in November or December.
Wall Street's infatuation with Facebook's social network and LinkedIn's
online professional network bodes well for Twitter. Like Facebook and LinkedIn,
Twitter runs a bustling service that relies on free content posted by its users.
With about 200 million users, Twitter is the smallest of the bunch, based on
the company's most recent disclosures about its size. LinkedIn has nearly 240
million users, and Facebook boasts nearly 1.2 billion active users.
That gap leaves Twitter more room to grow, a prospect that typically appeals
to investors.
Twitter's IPO will go well if it can draft off the momentum of Facebook and
LinkedIn, whose stocks have more than doubled in value in the past year. The
Standard & Poor's 500 index has risen 17 percent during the same period.
For LinkedIn, the gains extended a phenomenal run that began the day it went
public in May 2011 at $45 a share. The Mountain View company's stock never has
fallen below its IPO price, and it's now hovering around $250. LinkedIn has won
over investors by fueling the belief that its service has transformed the way
employers find and recruit workers. The company also has topped analysts'
financial forecasts every quarter since its IPO.
LinkedIn seized on the voracious appetite for its stock by selling as many as
6.2 million shares for $223 apiece in its secondary offering this month. After
expenses, LinkedIn will receive up to $1.35 billion, more than five times the
amount the company raked in from its IPO.
Facebook's stock has rebounded too. As soon as it began trading in May 2012,
the stock took a turbulent descent triggered by the social network's slowing
growth as well as doubts about the company's ability to figure out how to sell
and show ads on mobile devices. By last September, Facebook's stock had lost
more than half its value from its IPO price of $38.
The skepticism evaporated two months ago after Facebook's latest quarterly
results showed that more than 40 percent of the company's ad sales are now being
made on smartphones and tablets, up from virtually nothing at the same time last
year. Facebook's stock hit a new high of $51.60 earlier this week.
Here's another sign that Wall Street is still treading more cautiously than
it did during the dot-com boom: Although the bellwether Standard & Poor's
500 and closely watched Dow Jones industrial average both set records last
month, the technology-driven Nasdaq composite index remains about 25 percent
below its all-time high of 5,132.52 reached in March 2000.
Online travel service Priceline.com was among the biggest beneficiaries of
late 1990s giddiness. Shortly after it went public in March 1999, Priceline's
stock soared to a split-adjusted $990, even though the Norwalk, Conn., company
had a history of uninterrupted losses. Priceline now has established itself as a
consistent moneymaker with profits of more than $4 billion during the past 51/2
years. The pattern of rising earnings helped lift Priceline's stock past $1,000
for the first time last month.
AOL co-founder Steve Case thinks the wild swings in Internet stocks are
driven by rapid changes in technology and cultural tastes that make it difficult
to gauge how big and profitable Internet companies will become. He still recalls
the extreme fluctuations in AOL's stock from the time the company went public in
1992 with a market value of $70 million to its zenith of more than $160 billion
some 13 years ago.
"It was a pretty choppy ride," Case said. "There were some years when people
thought we were going to take over the world and the company's value reflected
that belief.
Then there were other years when people thought we were going to go out of
business.
This kind of thing goes with the territory."
Entrepreneur Marcus Nelson has noticed a dramatic change in investor
sentiment over the past year while trying to expand Addvocate, a San Francisco
startup that is trying to help workers do a better job promoting their own
companies on social networks.
Nelson couldn't find anyone interested in investing in his startup when he
began pitching his idea to venture capitalists and technology moguls last year.
He lost track of how often he had been shooed away after he was rejected 168
times. Finally, in June, Nelson was able to raise about $2.4 million. He
believes he'll have little trouble getting more money if he needs it.
"It's a hot space again," Nelson said.
The good times are rippling through Silicon Valley and the rest of the Bay
Area, where much of the economy revolves around the technology industry.
After dropping as low as $290,000 in 2009, the median sales price of Bay Area
homes rebounded to $540,000 through August, according to real estate research
firm DataQuick. That's still 19 percent below the region's peak median price of
$665,000 reached in July 2007.
In the Silicon Valley hub of Santa Clara County, companies added 8,500 jobs
in August to mark the biggest one-month gain since 2000.
Meanwhile, Netflix's stock price has increased nearly sixfold since last
September, reaching a new high of $333.60 in Wednesday's trading. The surge has
been building as the company's Internet video and DVD-by-mail service recovered
from a 2011 customer backlash caused by dramatic price increases.
Yahoo, one of the Internet's oldest and best-known companies, also has been
on the comeback trail. After it was stuck below $20 for more than four years,
Yahoo's stock has more than doubled since last September. While the company's
July 2012 hiring of
Marissa Mayer as
its CEO played a role in the stock's run-up, the biggest factor was a fortuitous
investment in Chinese Internet company Alibaba Group.
Yahoo reaped a $7.6 billion windfall by selling part of its Alibaba holdings
last year to reduce its remaining stake to 24 percent.
$34.14
Price of Yahoo stock. It is the first time in
nearly six years that it has surpassed $34
$1.7B
Amount investors have
poured in to secondary offerings by LinkedIn and Pandora Media
$1K
Priceline.com's stock has leapt beyond its 1999
peak during the
dot-com boom.
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