Social Media – Headed for a Stock Market Burst?
Social media is recently taking a stab at the stock market. The foremost question on every potential investors’ mind is can social media succeed where the dot-coms and the housing market failed? Are social media companies as lucrative as they appear on paper? Whereas the housing markets could be physically valued, social media companies have little to no valuation or revenue creation going on. Like the dot-com fiasco of the 90s, history is going to repeat itself. The Facebook IPO is an early indicator of the warning signs. Most trading is speculative in nature. But it is largely defined by how profitable the companies are based on their products and services on offer. Social Media darling Instagram was purchased for $1 billion by Facebook even though it is free and makes no revenue. Groupon and Yelp succeeded by not overvaluing themselves in their Initial Public Offering. Facebook and Zynga have a lot to learn about overestimating themselves. There’s a lesson here for all investors and venture capitalists to learn. Social Media companies are as immune to a stock market burst as any industry.