Tuesday, 5 October 2010

Social media bubble market

Recently there has been a huge swathe of stories on the rise and rise of Social Media. Indeed the new film about founding Facebook is the number one film in the USA. Taking a contrarian view, the more discussion there is of these wondrous new businesses, the more likely it is we are seeing a bubble effect.

At Twitter too the news is that the co-Founder is out, replaced by a former Google executive as they try to find a way to make money out of Twitter.

For a long time I have been sceptical about actually making huge amounts of money out of social networking, no doubt it will be cracked, but will the fad last long enough to sustain the business? Already Facebook is slowing in its acquisition of members and tweeting is losing its cool. The Internet has seen many risers and fallers over the past decade, some huge companies like AOL have gone by the wayside and even Bebo has faded away, once a Social networking star.

So for investors this is a doubly difficult business as picking winner is hard and these businesses often don't list until the hype is ripe. You could not buy google for 20c a share like you could say Cairn Energy.  Instead the IPO's are at high valuations with much more downside risk than upside. In the UK we have the Ocado debacle this year too, a hybrid online/retail play with a silly price designed to net the owners a fortune. On the other hand, will many of these companies ever IPO?

What this demonstrates is the reality of the decline of the Capital Markets; small and fast growing tech companies can stay private, take PE and VE money and never share their growing wealth with small investors (noting of course the huge risks mentioned above). I guess the Dotcom boom still has a lot to answer for and now there is not even a route to trying to pick the winners.

Anyone have any good social media companies on their watchlists, is it possible still to buy into this bubble and get out before it bursts?

14 comments:

Anonymous said...

The Ocado float really got my goat - it's never ever going to be a good investment for shareholders - yet they still got the issue away. And what's the share price now? -20/25% from the float price...?

Can anyone tell me the suckers who took a haircut on this (and will continue to do so)? Please tell me it's not my pension fund....

Steven_L said...

Just buy Vodafone, the punters pay them to do all this crap through their network with their smartphones.

roym said...

Not to go all Lou Mannheim, but do these social media companies have the fundamentals to become long term stable businesses with further opportunities for growth?

I think we only need to see what happened to Myspace to realise that once the commercial aspects become more apparent (being followers of brands on FB?) folk start to drift away.

The only Tech stock i am watching in Monitise. Barclays (i think) are already involved there, can only be a matter of time before they buy the whole thing.

I agree with Steve_L's approach, so have put a bit into PCT, a tech investment trust

Budgie said...

One tech stock that has survived is SDL.

CityUnslicker said...

ROYM - Monitise I like too, on my watchlist, thinking it is actually quite a long-term play and putting a chunk of my SIPP in it.

SDL - another good one Budgie.

Strange that none of the off-shoot or hangers on to FB etc have listed either. It's a warped market.

Blue Eyes said...

Facebook is getting very dull. I deleted my Twitter account a few months ago.

I reckon the next big thing is going to be getting of our arses and leaving the house. Lots of people haven't done this for a while so I am investing in clothing retailers.

Bill Quango MP said...

BE may be right. Lots of high street space is being filled right now. The gamble is the bust is over and time to sign up while the rents are low.

Budgie said...

Why buy cheap and nasty far east clothing at Primark when you can pay lots more at Marks & Spencer's?

Steven_L said...

I've just bought a few shirts and ties, only went out for 'blue monday' ay Yo Sushi and ended up wandering into House of Fraser after a few plates of sashimi.

bob m said...

what people aged 30+ who have tried Facebook think is irrelevant - if you know any 20 year olds, you will know they couldn't survive half an hour without checking their facebook page and writing a status update.....

CityUnslicker said...

@Bob M - but the young are faddish are they not? A classic difficulty of the youth market.

They have disposable income for advertisers indeed, but where is my capital to be invested to get a good return?

Obsidian said...

I'm debating buying into Facebook (via SharesPost) as I reckon it's here to stay and will likely see a large bump if/when it goes public.

Not so sure about Twitter, although Google may take it on at some point.

FB's biggest plus is that it's core really is just webmail on steroids, and adds in a lot of the functionality Friends Reunited had. MySpace was a bubble, FB is something more long term (albeit one that'll be initially terribly overvalued), so I figure buying in before it goes public offers you profit #1, followed by shorting it a year later for profit #2...

Steven_L said...

I'm debating buying into Facebook (via SharesPost)

You learn something new every day on here! I just registered, and lied to them about how loaded I was in case they told me to get lost for being a pauper.

UK investors said...
This comment has been removed by a blog administrator.