Social Media Stocks Keep getting Overvalued!
Social Media Stocks are getting overvalued for the last couple of years. Of course, these stocks introduced new wave of multi millionaires.
For the last over a decade, the best strategy followed in IT / Software industry is capturing the consumer market. Consumers / End users will not spend much and try to go with any thing which is FREE option. By understanding this strategy, companies started provided services completely Free and get the popularity in the market. Then they use the popularity to make money by either through advertisements or selling the entire unit to big companies.
The closing price and P/E ratio as of March 28, 2014
| Ticker | Company Name | Closing Price | P/E Ratio |
|---|---|---|---|
| FB | 60.01 | 91.46 | |
| LNKD | 190.59 | 871.83 | |
| YELP | Yelp | 76.44 | - |
| GRPN | Groupon | 7.85 | - |
| GIGM | Giga Media | 1.43 | - |
| LOV | Spark Networks | 5.14 | - |
| OPEN | Opentable | 77.29 | 55.54 |
| ANGI | Angie's List | 11.99 | - |
| CLKZ | Clicker | 0.05 | 0.19 |
| MEET | Meetme | 3.10 | - |
If you look at the above, you may get surprise since all of the stock's P/E ratio is very high (except CLKZ) or do not have any P/E ration since they have filed loss in the last one year.
People keep betting on social media stocks thinking that it can grow. Sometimes they are fortunate. Even though FB does not have enough earning potentials, people do keep betting because of their user base. When Facebook have filed profits and their stock sky rocketing by more than double. FB utilized this opprotunity to buy other companies such as Whatsup. If Whats up can generate good revenue, then again FB stock will soar.
Fundamentally Is it worth owning a social media stock? As long as you follow bigger fool theory and can flip the stock, then it is good to own. If you are a conservative investor, then it is better to avoid social media sector.
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