Facebook deflates any thought of new tech bubble

May 28, 2012 by Charlotte Raab
The Nasdaq board in Times Square advertises Facebook which debuted on the Nasdaq Stock Market on May 18 in New York, United States. The horrendous stock market debut for Facebook suggests investors are not ready to jump in and create another tech bubble despite big expectations for social media, analysts say.

The horrendous stock market debut for Facebook suggests investors are not ready to jump in and create another tech bubble despite big expectations for social media, analysts say.

Facebook closed out its first full week of trade with a loss of 16 percent from its offering price of $38, in a huge disappointment after a much-hyped worth $16 billion, the biggest for a tech firm.

The stock failed to live up to the anticipation of some who thought investors would be stampeding to get a piece of the network which has 900 million users.

"When you see share prices tank, it does get people back on to a more foundational basis, in terms of real revenues, real profits," said Nick Landell-Mills at Indigo Equity Research.

Mark Heesen, president of the , said investors are being more cautious than during the tech bubble of the late 1990s.

"This is by no means the end of . It is going to continue to grow and expand," he said.

But he said that during the tech bubble, " invested $150 billion in two years. In the last two years we invested about $60 billion. There is much, much less money in the system right now. That's critically important."

Gerard Hoberg, professor of finance at the University of Maryland, said he does not expect a new bubble, given today's market sentiment.

Facebook User Operations team member Kristie Chow checks a page of the number one social networking website at the Facebook headquarters in Menlo Park, California on May 15. The horrendous stock market debut for Facebook suggests investors are not ready to jump in and create another tech bubble despite big expectations for social media, analysts say.

"I think it's very healthy and I think people learned the lessons from the 1990s," he said. "It's preventing a bubble from forming."

Facebook appeared to be the in a surge into social media. But some of its social media brethren are also being watched cautiously.

Zynga, the website which has strong ties with Facebook, has lost some 35 percent, and the online deals firm Groupon has slid nearly 40 percent. But the professional social network has doubled in a year since its IPO.

Heesen said the mixed reaction to these IPOs has taken some of the froth out of the market.

"If Facebook languishes, that does send a signal to others (tech firms) that maybe going public is not the best option -- maybe getting acquired or trying to wait out this volatile period is better," he said.

"The whole social media arena is still ripe for investment," he added, but cautioned there will be "bumps along the road."

Landell-Mills said that even though investors appear unwilling to chase share prices, they will flock to a company that makes real profits, like Apple, up 67 percent in the past year.

"I'd never call Apple a bubble," he said.

The analyst said that Facebook still has a lofty valuation when measured by earnings, unlike some firms such as Google.

"When Google went to its IPO there were some very clear data points which suggested that it added value," he said. "With Facebook, we don't know."

But Hoberg said the market does not have the exuberance of the 1990s.

"People are not going to let a frothy stock keep going, they're pushing back," he said.

He maintained that any new IPO will have to take into account the Facebook fiasco.

"This reaction is so negative, and the underwriters are getting so much bad press that they really cannot afford to have that happen again, so they're going to take steps to underprice the next one even more just to make it so that the investment machine returns to health," he said.

Explore further: Microsoft earnings slip on soft computer sales

add to favorites email to friend print save as pdf

Related Stories

Internet stock slips raise fears of new bubble

Nov 30, 2011

Quick cooling of hot stock market debuts by Internet darlings such as Groupon has fed fears of another speculative bubble as social networking star Facebook prepares to go public.

Tale of the tape: Google versus Facebook

May 17, 2012

Facebook is the hottest Internet company to hit the stock market since Google went public in 2004. The Silicon Valley companies, located seven miles apart, also happen to be locked in a bitter battle for Web surfers' allegiance ...

LinkedIn IPO stirs Internet bubble fears

May 18, 2011

LinkedIn, the professional-networking website firm, said Tuesday it expects to be worth as much as $4 billion when it goes public soon, sparking fears of another Internet bubble. ...

Andreessen says no new high tech bubble

Jun 02, 2011

Netscape co-founder turned Silicon Valley venture capitalist Marc Andreessen on Wednesday rejected recent speculation about a new high-tech bubble.

Recommended for you

Tech giants settle suit over no-poaching deal

1 hour ago

Tech giants Apple, Google, Adobe and Intel settled a lawsuit Thursday that charged they had colluded to hold salaries down by agreeing to not poach each other's staff.

Amazon launches grocery service for Prime members

1 hour ago

Amazon is taking aim at grocery stores and discounters like Wal-Mart with a grocery service that lets its Prime loyalty club members fill up to a 45-pound box with groceries and get it shipped for a flat rate of $5.99.

Facebook buys fitness app Moves

5 hours ago

Facebook has bought the fitness app Moves, which helps users monitor daily physical activity and their calorie counts on a smartphone.

User comments : 0

More news stories

One in 13 US schoolkids takes psych meds

(HealthDay)—More than 7 percent of American schoolchildren are taking at least one medication for emotional or behavioral difficulties, a new government report shows.

FDA reconsiders behavior-modifying 'shock devices'

(HealthDay)—They're likened to a dog's "shock collar" by some and called a "life-saving treatment" by others. But the days of electro-shock devices as a tool for managing hard-to-control behavior in people ...

Computer program could help solve arson cases

Sifting through the chemical clues left behind by arson is delicate, time-consuming work, but University of Alberta researchers teaming with RCMP scientists in Canada, have found a way to speed the process.