Tuesday, June 14, 2011

Can internet bubble happen again?

Why not?, history repeats itself and we at InvestorZclub believe that the making of such bubble has already started. The buzz in the market suggest that Facebook valuation could be $100 Billion when its IPO is offered to public.

When Linked in got listed about 2 months back, it commanded a PE multiple of more than 1000 times (http://investorzclub.blogspot.com/2011/05/linkedin-get-listed-on-nyse-stock.html) on 2010 earnings.

At $100 Billion, Facebook would command a PE multiple of more than 200 times, which means investors would need 200 years to break even, which is senseless valuation from any investor's perspective. History suggests that whenever exuberance has taken over sensibility and people have gone crazy about owning some company at any price, the result has been disaster. RPOWER in India was a classic example of investor's chase which ended in a horrible disaster. The wise private equity investors utilize these opportunities to exit at handsome price but foolish investors get stuck and left on the mercy of greater fool theory to play out .

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