BYE-BYE INTERNET BUBBLE 2.0
The signs that the second great Internet investment bubble was nearing its end have been there for months for those who know where to look.
They included the decrease in funding rounds for private startups valued at $1 billion or more; more tech start-ups, including Uber, having to go overseas to raise money at higher valuations; and prominent venture capitalists writing blog posts encouraging more private companies to go public sooner rather than later.
All these suggested that big U.S. investors were beginning to turn up their noses at Internet valuations.
Now, because of the worst start of a year for tech stocks since the Great Recession, these more-obscure data points have been confirmed by a more glaring one: the ongoing slaughter in public Internet valuations.
The collapse of LinkedIn shares (LNKD) — which plunged 44% Friday — shows that even profitable Internet firms are now being abandoned by professional money managers.
Along with Facebook (FB), LinkedIn is one of the few Internet stocks among those valued above $10 billion that went public during the past five years to still be trading above its IPO price.
By sharp contrast, Alibaba, Twitter, Groupon, Zynga, Box, HortonWorks, FitBit, GoPro and Square all are below their initial offering prices.
And because Facebook lost roughly 50% of its value in its first six months as a public company, LinkedIn still holds the distinction of having never traded below its IPO price of $45.
While that’s good news for the professional investors who got it at that price in 2011, it’s now little comfort for those who bought the company’s shares at the top.
After its Friday plunge — prompted by a 2016 revenue fore- cast that badly lagged Wall Street estimates — LinkedIn is now 60% below its 52week high.
And LinkedIn has plenty of company amid the selloff, as the list of Internet issues that have punished retail investors is extensive.
Twitter and Groupon are the biggest dogs of this boom, both off 70% from 52-week highs and well below their IPO prices.
FitBit shares have collapsed 70%, while Yelp’s valuation has shrunk by two-thirds.
Box, which has the distinction of posting quarterly net losses in excess of revenue, is down by half.
Match.com, the holding company for dating sites owned by parent Interactive Corp. that went public late last year, is down 39% from its high.
Alibaba (BABA), which sold the largest IPO ever 30 months ago, is off by a third, as is fellow Chinese Internet giant Baidu.com.
More established Internet firms that went public during the last boom also have not been spared.
Yahoo (YHOO) shares are off 39%, and Netflix (NFLX), the best-performing stock in the S&P 500 last year, is now off by 37% from its 52-week high.
Likewise, Priceline.com (PCLN) is off 31% and eBay (EBAY), 22%.
Amazon.com (AMZN), among the best-performing large-cap tech stocks of 2015 after a 117% gain, has now lost 28% since hitting an all-time high in late December.
Tencent Holdings, meanwhile, is now straddling the line between a correction phase and outright bear market territory,
with a drop of 17% from its 12month high.
If you want to see which Internet companies are still held in highest favor by investors, look for those that have held up best during this year’s collapse.
Google parent Alphabet (GOOGL) and Facebook (FB) are down just 11% and 10%, respectively, from their 52-week highs.
The huge sell-off in these other smaller, less-valuable Internet names suggests that any company whose business depends on online advertising is likely to get crushed under the dual weight of Facebook and Google.
Both reported better-than-expected fourth-quarter results and have a combined market value of more than $800 billion.
That doesn’t leave much room in investor portfolios for Internet also-rans.
The history of the dotcom collapse strongly suggests that stocks that are more than 50% below their highs are not getting ready for a rebound that will reward patient investors — even though a long parade of fund managers have appeared on CNBC this year saying just that.
Instead, their stock prices are signaling that their days as independent companies are numbered.
With LinkedIn’s collapse, it’s quite clear that the second big Internet investment party ended in Silicon Valley the same week the Super Bowl party arrived here.