In the Facebook movie, The Social Network, one of the original investors asks the question, “A million dollars isn’t cool, you know what’s cool? … A billion dollars.” Now, less than a decade after inception, Facebook is looking very cool indeed with a projected public offering in the neighborhood of $100 billion and perhaps the most anticipated IPO since Google.
The internet music company Pandora and the professional networking site LinkedIn each had IPOs this spring at nearly $3 billion and $9 billion valuations respectively. In addition to Facebook’s expected IPO in 2012, Groupon, Living Social, and Zynga have all filed paperwork declaring their intentions to make a public offering in the near future. Despite high national unemployment and a ubiquitous sense of economic gloom, the prospect of public investment in the internet social media movement has resulted in a frenzy of excitement not seen since, well, the last internet bubble.
While bubble speculators debate whether or not there is a bubble, entrepreneurial investors let the logic of fundamental analysis guide them to temper hysteria and identify sound investment opportunities. Each new internet company must be evaluated in the same way any potential investment is evaluated; on its own merits. In that way, the current frenzy looks less like a bubble, and more like a handful of potentially over valued companies. Rather than one giant industry-wide bubble, like we have experienced in the past with housing or the internet, this social media phenomenon appears to be closer to what one might witness when watching children play with bubbles on the playground; many individual bubbles will pop on their own with little or no economic reverberations, while a few float away.