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 (NYSE:DAL) or the publicly traded railroads. Airbnb’s implied market value is larger than, say, Marriott International (NYSE:MAR).
Even Facebook’s (NASDAQ:FB) market valuation is either at or more than Walmart’s (NYSE: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 (NASDAQ: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.
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.