Monday, July 25, 2011

Social Media: An Overheated Microclimate in a Temperate Investing Zone

Th enthusiasm for social-media stocks is getting awful high and Michael Santoli wrote about it in this recent Barron's article:

Barron's: Bubble Trouble

According to the article, the combined revenue of eight leading social-media businesses (that are apparently being value at $ 200 billion) is only $ 3.5 billion (yikes!).

The article also points out that the Washington Post (WPO) alone, with a market value of $ 3.4 billion (a mere $ 196 billion plus less), has more in revenue (actually, roughly $ 1 billion more).

In addition, Some of the large public technology companies (Google: GOOG, Apple; AAPL, Microsoft: MSFT among others) carry modest valuations relative to earnings yet stand to potentially benefit from trends in mobile computing and/or social media in significant ways.

From the Barron's article.

...this isn't a straight replay of the '90s tech bubble, and therefore not a once-in-a-century misallocation of capital that will collapse a broad swath of the U.S. stock market...But in a market where...20% of large tech stocks trade at single-digit price/earnings ratios, the social-media group looks to be an overheated microclimate in a generally temperate investing zone.

Large cap tech stocks also happen to be much better capitalized and have relatively proven businesses to fund future investments in the bigger opportunities.

So even if upside is more limited (as is the downside), an investor can participate in some rather dynamic trends but doesn't have to speculate nearly as much to produce a nice return.

Check out the full article.

Adam

Long positions in WPO, GOOG, AAPL, and MSFT

Related post:
Technology Stocks

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