Wednesday, November 20, 2013

The Latest Sign of a Second Internet Stock Bubble

Silicon Valley is littered with stories of genius college students dropping out

 

Wednesday, November 20, 2013

 

 

The Latest Sign of a Second Internet Stock Bubble
by Ian Wyatt

 


Editor's Note: Microsoft more than doubled its dividend payouts over the past decade - which is great. But our income expert Andy Crowder recently uncovered a way to double Microsoft's dividends in a matter of months - not years. TOMORROW at 2 pm, he reveals exactly how in a free, live teleconference event. Click here to sign up.
 

 

Silicon Valley is littered with stories of genius college students dropping out to do the tech startup thing.  The ones that go bust are rarely heard of.  But success stories like Mark Zuckerberg and Facebook (NASDAQ: FB) capture the imagination of capitalists seeking to invest in the next great thing.

 

Like many tech success stories, this one starts at Stanford University. Students Evan Spiegel and Bobby Murphy were working on a project for their product design class.  The idea was novel at the time: an app that would allow for the sharing of photos. But unlike Facebook and other photo-sharing apps and web sites, the photos would only be temporary available. After a set period of time, they would be deleted.

 

Most of their classmates were skeptical.  Why would a user not want their pictures to be permanent or public?

 

The reason is simple: in a world where parents monitor their kids' Facebook accounts and college admissions counselors review applicants' Twitter history, privacy is a big concern. And these two Stanford students decided to capitalize on those privacy fears.

 

Spiegel and Murphy have turned their concept into a red-hot mobile app called Snapchat. It's been rapidly gaining popularity among young people who want to privately share images.

 

The photo-sharing service is gaining lots of traction.  Yesterday, Snapchat said that its users now share 400 million photos per day - an increase of 100% since June. 

 

To put that in perspective, Snapchat users share more photos per day than Facebook and Instagram users combined.

 

Thanks to its skyrocketing popularity, SnapChat has attracted more than $74 million of investments from top-flight venture capital firms, including Benchmark Capital.

 

Big Internet and social media companies - including Facebook, Google, Microsoft and Yahoo! - are all on the lookout for the next app that threatens to steal their users and cut into their profits.  That's exactly why Facebook bought Instagram for $1 billion last year. 

 

So it shouldn't be any surprise that Snapchat is attracting similar attention from the big tech companies.  Last week, The Wall Street Journal reported that Snapchat had rejected a $3 billion acquisition offer from Facebook.  A prominent tech writer says that Google (NASDAQ: GOOG) offered $4 billion. 

 

-------Advertisement------

Collect monthly $1,200 "rent checks" -- without being a landlord

 

It's one of the greatest income sources available... being a landlord. You collect rent month after month and ever year it goes up! But being a landlord also means headaches and increasing your debt by taking out mortgages to buy new properties or renovate existing ones. That used to be the case... until now. We've uncovered a way to earn steady, monthly income through rental properties WITHOUT being a landlord. If this sounds good to you, please read our research brief that explains how to collect your first "rent check" next month. 

 

Click here to read my report.

-------------------------------

 

That's a huge valuation for a young company with zero revenues.  As recently as February the company was valued at just $60 million.

 

Individual investors like you and me rarely have an opportunity to get in on the ground floor of the next big thing. But that hasn't stopped investors from chasing social media stocks once they go public. 

 

Last week, I warned you about the Twitter (NASDAQ: TWTR) IPO, which soared 73% in its first day of trading.  Shares trade at an astounding multiple of 40-times expected 2013 revenues. Note: that's a multiple of the company's sales, not profits.

 

But Twitter isn't the only richly priced social media stock. Internet stocks have been one of the best-performing sectors of late. In the last year, the Dow Jones Internet (NYSE: FDN) ETF is up 51%. That's enough to beat the S&P 500 index by an impressive 22%.

 

The performance of specific Internet stocks has been even more impressive.  Despite small profits, the share prices of select companies have been soaring this year. 

 

The Next Internet Stock Bubble?

 

Company

Ticker

Market Cap

YTD Gains

2014 PE Ratio

Amazon

AMZN

$167 billion

42%

137

Facebook

FB

$114 billion

66%

41

LinkedIn

LNKD

$26.4 billion

96%

100

Netflix

NFLX

$20 billion

266%

84

Yelp

YELP

$4 billion

220%

332

 

As those lofty multiples suggest, the share price of certain Internet stocks have diverged from the fundamental performance of the business.   Investors are simply making speculative bets that rapid growth will continue to drive up valuations.  Though not a public company, Snapchat appears to be an extension of that rampant speculation.

 

Eventually, the bubble will burst again. And when it does, it's going to be really ugly.  When investors start caring about pesky details like profits and P/E ratios, the valuations of many Internet stocks will come crashing back to more reasonable levels.

 

In my real-money $100k Portfolio investment advisory, my subscribers and I have been profiting from Netflix (NASDAQ: NFLX).  But after riding this stock to 374% gains over the last two years, we're starting to take profits. If you own any highflying Internet stocks that are trading at rich valuations, I encourage you to do the same.

 

Snapchat's rejection of Facebook's $3 billion buyout is simply a sign of the times.  The company's founders can only see the opportunities on the horizon, without consideration of the potential risks that lie ahead. We may look back at this event as the pinnacle of the second Internet bubble.

 

Protect your profits. And sell some of your tech winners now, before the bubble bursts again.

 

Good investing

 

Ian Wyatt 

Richmond, Vermont

 

 

 

Further Reading:

 

"I'd say it's no stretch to call AT&T (NYSE: T) one of the more reliable dividend-growth and income investment stocks on the market. The large telecom has continually paid dividends for 100 years, and has consistently raised that dividend annually for the past 28 years." Read more here: A New Opportunity to Double Your Dividend

 

"If there were no such thing as dividend reinvestment programs (DRIPs), I probably would never have been able to afford my first house." Read more here: How a DRIP Helped Pay for My First Home

Own this Stock Before Dec. 31st -- The Day Mobile Takes Over

 

Soon, the majority of Internet traffic will originate from mobile devices including smartphones and tablets. And even though Apple is selling over 200 million iPhones this year alone... Here at Wyatt Research, we're NOT adding shares of Apple today. We're recommending the one company no one is taking about... the one reaping massive profits each time a new Apple or Samsung smartphone is activated. In fact, its stock is set to soar 117%! And its shares are already on the move -- it's up 20% in the last month alone! So, before this stock moves any higher, read our latest report for all the details: Click here for the full story.

Popular Analysis from Wyatt Research

Friday, November 15, 2013
Retail Recovery Benefiting Income Investors
This hasn't been the best year for U.S. retailers. But retail sales have undoubtedly been a major contributor to America's post-recession recovery.


Thursday, November 14, 2013
Potbelly is the Chipotle of Sandwiches
Fast casual dining stocks have been one of the hottest sectors of the market throughout the past couple of years.


Wednesday, November 13, 2013
Great Companies vs. Great Investments

The secret to making money in the stock market is NOT to simply invest in great companies, but to identify great investments. That may come as a surprise, but it's true.

Latest Daily Profit

 

Tuesday, November 19, 2013
Why Microsoft Needs the Next Marissa Mayer

Steve Ballmer is out as Microsoft (NASDAQ: MSFT) CEO. After 33 years with the software giant, the last 13 spent as its CEO, Ballmer was essentially forced into retirement by Microsoft's board of directors.

 

Monday, November 18, 2013
My Favorite Growth Trend
It's usually a challenge to select one single growth trend that is more powerful than the rest. But that's not the case these days - it has to be the boom in U.S. oil and gas production.

Disclaimer & Important Information

WyattResearch.com is owned and published by Wyatt Investment Research. Wyatt Investment Research is neither a registered investment adviser nor a broker/dealer. Readers are advised that this electronic publication is issued solely for information purposes and should not to be construed as an offer to sell or the solicitation of an offer to buy any security.

We encourage you to review our full Email and Disclosure policies.
To view our Email Policy, please
click here. To view our Disclosure Policy, please click here.

If you believe this communication to be a mistake or unsolicited, please e-mail
abuse@bfpnewsletters.com with details regarding your situation, and we will be sure to promptly investigate your situation.

You are subscribed with the following email address: godsentnnodim.investment@blogger.com
To unsubscribe from this newsletter, please visit www.wyattresearch.com/unsub/godsentnnodim.investment@blogger.com

Copyright (c) 2013 Wyatt Investment Research. |
Privacy Policy

Wyatt Investment Research
65 Railroad Street
Richmond, VT 05477. PO Box 790

 

 

No comments:

Post a Comment