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Tech Bubble Seen In 'Dot-Apps'

Wall Street analysts are warning FOX Business they see a tech bubble in tech startups, particularly apps, that are about to IPO, and that investors could get burned once the shares start to trade.

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Many tech start ups were not around when Bear Stearns went bankrupt and President Obama was first elected. But now their implied valuations are higher than many S&P 500 companies, established global businesses that have been in operation for decades. Meanwhile, as the Nasdaq regained its nominal tech-bubble high set in 2000 (it has to hit inflation- and dollar-adjusted 6,941 to be a market high), shares of publicly traded tech companies are up nearly 13.5% in the last year, about double the broader Standard & Poor's 500’s gain.

Wall Street analysts are also warning that they see a repeat of the dot com era. But now it’s not a dot.com bubble, but a dot.app bubble, where monthly active user metrics have replaced clicks per customer or revenue per eyeballs. Uber is a taxi-hailing app, but its implied market valuation doubled in just six months’ time and is now higher than Delta Airlines (DAL) or the publicly traded railroads. Airbnb’s implied market value is larger than, say, Marriott International (MAR).

Even Facebook’s  (FB) market valuation is either at or more than Walmart’s (WMT), depending on where the social media site’s shares are trading, even though Facebook has just 3% of Walmart’s $482 billion in sales. When you think about it, Facebook, Twitter (TWTR), even Uber are basically giant apps, or applications. While Facebook is getting mass market appeal, the Twitter or Uber crowd log on maybe once a day, if that.

Here’s another point to consider: Nearly three-quarters of IPOs last year, about 70%, had no profits, analysts warn, while the number of $1 billion-dollar start-ups with no profits has more than quadrupled since 2013. Despite all that, investors have sunk about $100 billion in tech IPOs with no profits, research shows.

Moreover, the reason these stocks tend to zoom higher is because they have thin flotations and little liquidity, not a lot of shares, which is bad to the downside, when investors start to exit and there is no one there to buy.

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Still, the Nasdaq is more diversified today; the tech sector comprises 43% of the Nasdaq, versus 57% in the dot-com era. Stocks in consumer services and health care make up 21% and 16% of the index, respectively.

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