Rebecca Lipman, Kapitall, The Motley Fool, AOL.com
Feb 2nd 2012 1:41PM
Analysts are beginning to wonder, perhaps too late, whether Facebook's IPO will cause tech bubble 2.0? The tech industry has been one of the most sought-after sectors since the New Year, and the prospect of a soon-to-be debuted IPO is leaving some investors drooling in anticipation.
But why? Haven't we all been down that road before? And does anybody remember Myspace? Could Facebook just be a passing fad like any other?
The hype and concern is probably best summarized by Richard Harris, Chief Executive at Port Shelter Investment Management: "It reminds me of the huge dotcom bubble and this does seem to be harking back to the days of craziness where valuations are really high. But Facebook is a darling; everybody loves it, all the kids are on it and that's one of the reasons we're looking at valuations like this."
Tech bubble Facebook's IPO expected valuation is between $75 billion and $100 billion, one of the largest IPOs in U.S. history. But as Kapitall mentioned a few days ago, its operating margin is comparatively slim to other technology companies.
"It produces a lot of interest, a lot of heat and life but really has no real products and where revenues are relatively thin it does seem a tough valuation," says Harris.
Because of Facebook's prominent role, its IPO could set somewhat of a precedent for the social media industry. If it disappoints, some suspect it could have an interestingly negative effect on investor sentiment toward the entire industry's valuations.
Business section: Investing ideas If another tech bubble is about to burst, we were wondering which tech companies might be able to ride out the storm.
For ideas, we created a screen of large-cap tech companies that are more profitable than their industry peers based on trailing-12-month (TTM) gross, operating, and pre-tax margins.
If the tech industry turns sour, do you think these names will still outperform? (Click here to access free, interactive tools to analyze these ideas.)
1. Apple (NAS: AAPL) : Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. TTM gross margin at 44.12% vs. industry average at 43.4%. TTM operating margin at 33.87% vs. industry average at 26.71%. TTM pre-tax margin at 34.2% vs. industry average at 27.05%.
2. Intel (NAS: INTC) : Engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. TTM gross margin at 74.1% vs. industry average at 59.82%. TTM operating margin at 33.21% vs. industry average at 24.16%. TTM pre-tax margin at 32.93% vs. industry average at 23.08%.
3. BCE: Provides wireline voice and wireless communications services, Internet access, data services, and video services to residential, business, and wholesale customers in Canada. TTM gross margin at 54.46% vs. industry average at 49.06%. TTM operating margin at 22.27% vs. industry average at 13.18%. TTM pre-tax margin at 16.53% vs. industry average at 10.17%.
4. Vivo Participacoes: TTM gross margin at 62.97% vs. industry average at 49.06%. TTM operating margin at 17.76% vs. industry average at 13.18%. TTM pre-tax margin at 18.82% vs. industry average at 10.17%.
5. American Tower: Operates as a wireless and broadcast communications infrastructure company. TTM gross margin at 72.6% vs. industry average at 39.68%. TTM operating margin at 37.69% vs. industry average at 37.26%. TTM pre-tax margin at 20.71% vs. industry average at 15.12%.
6. Altera (NAS: ALTR) : Designs, manufactures, and markets programmable logic devices (plds); structured application-specific integrated circuit devices; predefined design building blocks or intellectual-property cores; and associated development tools. TTM gross margin at 71.98% vs. industry average at 59.75%. TTM operating margin at 41.23% vs. industry average at 23.97%. TTM pre-tax margin at 41.12% vs. industry average at 22.89%.
7. Analog Devices (NYS: ADI) : Engages in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits used in industrial, communication, computer, and consumer applications. TTM gross margin at 70.32% vs. industry average at 59.82%. TTM operating margin at 35.9% vs. industry average at 24.16%. TTM pre-tax margin at 35.46% vs. industry average at 23.08%.
8. SanDisk (NAS: SNDK) : Designs, develops, manufactures, and markets NAND-based flash data storage card products that are used in various consumer electronics products. TTM gross margin at 46.25% vs. industry average at 43.%. TTM operating margin at 27.49% vs. industry average at 25.57%. TTM pre-tax margin at 26.08% vs. industry average at 25.8%.
9. Cerner: Designs, develops, markets, installs, hosts, and supports health care information technology, health care devices, and content solutions for health care organizations and consumers worldwide. TTM gross margin at 47.02% vs. industry average at 45.66%. TTM operating margin at 20.38% vs. industry average at 13.63%. TTM pre-tax margin at 20.8% vs. industry average at 11.53%.
10. OYO Geospace: Engages in designing and manufacturing instruments and equipments used in the acquisition and processing of seismic data; and in the characterization and monitoring of producing oil and gas reservoirs. TTM gross margin at 46.92% vs. industry average at 34.85%. TTM operating margin at 25.67% vs. industry average at 18.17%. TTM pre-tax margin at 25.8% vs. industry average at 16.16%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above.
Facebook - A Timeline
Facebook IPO: Tech Bubble 2.0?
Oct. 28, 2003: Mark Zuckerberg hacked into restricted areas of Harvard University's computer network to create Facemash, a website that pulled the private dormitory ID photos of students, then asked users to compare the pictures of two random students and chose which one was better looking. For the brief period before university administrators shut it down, it proved quite popular.
January 2004: Zuckerberg began to write the basic software to create a universal Harvard social directory, TheFacebook.
Jan. 11, 2004: Zuckerberg registered thefacebook.com domain. Then, on Feb. 4, TheFacebook launched at Harvard University. Mark Zuckerberg, right, and Dustin Moscovitz, co-founder, left; took a semester off in 2004 to further improve on TheFacebook website.
April 13, 2004: Zuckerberg, Dustin Moskovitz, and Eduardo Saverin formed Thefacebook.com LLC, a partnership.
June 2004: TheFacebook moved it's headquarters to Palo Alto, Calif., and received an investment of $500,000 from Peter Thiel.
June 2004: Thefacebook incorporated into a new company, and Sean Parker, a co-founder of Napster, took the job of president for the growing business.
September 2004: Facebook replaced its "User is..." prompt with a "What's on your mind?" question in the newly designed space for posting and sharing status updates called "The Wall."
September 2004: Harvard students Cameron Winklevoss and Tyler Winklevoss of ConnectU filed a lawsuit against Zuckerberg and other Facebook founders for allegedly stealing their idea for a college social network called HarvardConnection.
July 19, 2005: Then-dominant social networking site MySpace was acquired by News Corp., spurring buzz on the Internet about the possible sale of Facebook to a larger media company.
Aug. 23, 2005: TheFacebook dropped its "The" and became Facebook. Purchase price it paid for the Facebook.com domain name: $200,000.
September 2005: Facebook added networks for high school students. In December 2005, Facebook reached 6 million users.
2005: Artist David Choe began painting murals at the headquarters of Facebook in exchange for company stock. Today, the shares he received are worth an estimated $200 million.
2006: A cash flow statement was leaked showing that Facebook had a net loss of $3.63 million for the 2005 fiscal year.
Sept. 26, 2006: Facebook removed its restrictions and allowed anyone 13 and older with a valid email address to join. A news feed and a mini-feed were introduced, providing easier ways to see what your friends are up to.
May 2007: Facebook Platform launched with 65 developers and more than 85 applications. Third-party developers quickly followed, building applications to integrate with Facebook. Games such as Farmville and Mafia Wars spread rapidly.
July 25, 2007: A federal judge gave twin brothers Cameron (left) and Tyler Winklevoss, founders of ConnectU, and Divya Narendra until Aug. 8 to flesh out the allegations in their lawsuit against Mark Zuckerberg. Those charges included fraud, copyright infringement and misappropriation of trade secrets.
December 2007: Facebook reached 58 million users. With the successful addition of Facebook Platform and video, growth remained strong. Facebook charted a course toward becoming a general portal like AOL; meanwhile, the choice was made not to aim toward being acquired, as MySpace.com, YouTube and so many other tech startups were.
June 2008: Facebook settled two lawsuits, ConnectU vs Facebook, Mark Zuckerberg et al. and intellectual property theft, Wayne Chang et al., over The Winklevoss Chang Group's Social Butterfly project. The settlements effectively had Facebook acquire ConnectU for $20 million in cash and Facebook shares valued at $45 million, based on a $15 billion company valuation.
July 2008: The first Facebook iPhone app was released.
August 2008: News broke that some employees reportedly privately sold their shares to venture capital firms at prices that gave the company an implied valuation of between $3.75 billion and $5 billion.
October 2008: Facebook set up its international headquarters in Dublin, Ireland.
February 2009: The "Like" social plug-in was added, allowing users to follow status conversations without having to say anything. The like button was instantaneously a hit. It's initial purpose has been widely misinterpreted as a positive approval button.
August 2009: Facebook acquired FriendFeed, a real-time news aggregator.
September 2009: Facebook said that its cash flow had turned positive for the first time.
April 2010: Facebook announced the acquisition of photo-sharing service Divvyshot, and introduced Community Pages.
May 31, 2010: Quit Facebook Day was an online event where users vowed that they would quit the social network shortly after widespread criticism was received on the new privacy controls rolled out in mid-May. Zuckerberg publicly admitted the company had "missed the mark." An estimated 33,000 users quit the site.
June 2010: Facebook employees sold some shares on SecondMarket at prices giving the company an implied valuation of $11.5 billion
August 2010: Places launched, allowing users to share information about where they are in the real world, so friends can find each other.
Oct. 1, 2010:The Social Network, a film about the start of Facebook, was released to theaters. The film, directed by David Fincher, was met with widespread critical acclaim and won the Golden Globe and Critics Choice Best Picture for the Year. Mark Zuckerberg stated that the film is an inaccurate account of what happened.
November 2010: Facebook added features to its mobile software for Android devices. The number of users reached just short of 608 million, with mobile traffic increasing.
December 2010: TIME magazine named Facebook founder and CEO Mark Zuckerberg the 2010 TIME Person of the Year.
January 2011: Equity investors put $500 million into Facebook for 1% of the company, placing its implied value at $50 billion.
February 2011: Facebook added 'Civil Union,' and 'Domestic Partnership' to its Relationship Status options.
February 2011: Facebook application and content aggregator Pixable estimated that Facebook would host 100 billion photos by summer 2011.
June 2011: Facebook partnered with Skype to add video calling as well as a new group chat feature.
September 2011: Heroku joined forces with Facebook for application development using the Facebook Platform.
Sept. 22, 2011: Facebook debuted the new Timeline user interface at the F8 Convention.
October 10, 2011: Facebook launched its iPad app.
December 2011: Membership reached 845 million users.
December 2, 2011: New York Mayor Michael Bloomberg (left) Facebook Chief Operating Officer Sheryl Sandberg (center) and Sen. Charles Schumer (D-N.Y.), react during a news conference on the announcement that New York will be the center of Facebook's new engineering technology initiative.
December 22, 2011: Facebook launched the new profile user interface, Facebook Timeline.
January 24, 2012: Facebook announced that "Timeline" would become mandatory for all users.
Feb. 1, 2012: Facebook filed paperwork to go public, seeking to raise $5 billion on Wall Street in the largest flotation ever by an Internet company.
March 6, 2012: Facebook launches Messenger for Windows, which gives users of Windows 7 Facebook services without the need for a web browser.
April 9, 2012: Facebook announced that is will acquire the photo-sharing app Instagram for $1 billion USD.
May 18, 2012: Facebook founder, Chairman and CEO Mark Zuckerberg, center, rings the opening bell of the Nasdaq stock market from Facebook headquarters in Menlo Park, Calif. The social media company priced its IPO on Thursday at $38 per share, and beginning Friday regular investors will have a chance to buy shares.