Social Media IPO Valuations Parallel Dot.com Era Bubble

Social media companies are a hot topic at the moment, primarily due to their high yet hard-to-substantiate valuation figures.

Professional networking website LinkedIn was deemed to be worth $175 million, Facebook, which has confirmed that it would launch its first IPO in 2012, is allegedly worth $50 billion, while the social blogging site Twitter acquired $ 200 million in private investment in December, and its value has skyrocketed to $3.7 billion.

The recent trend of the social media platforms is changing the landscape of Silicon Valley players to become worldwide corporate success stories.

“These companies are more mature, their sector is more defined, and they have better income," said Francis Gaskins, president of IPOdesktop.com.

The real-time posting abilities and wide reach of users is enhancing the publicity about the corporate ambitions of the companies. Given the vast amounts of valuations of these high profile social media giants, their soaring successes do not come without criticism.

There has been ever increasing discussion about the social media bubble. Business Insider commented, "It feels like 1999 all over again."

Market commentators have linked the dot.com burst of the late ’90s to the current social media investment climate. When Netscape’s IPO was announced, it was priced at $28 a share and rocketed to over $100 per share (factoring splits already). Google has followed the same pattern. The dot.com era and the possible returns of the Internet resulted in the unrealistic valuation of companies and subsequently the bubble burst. Amazon.com and eBay capitalized from the success of ’90s and have withstood the test of time.

The “seemingly overblown valuations of such firms as Facebook and Groupon chillingly remind us of those dot.com companies that grow out of smoke and mirrors only to attract investors into a quicksand of unreturnable investments,” said Consumersaffairs.com’s Fred Yager.

The birth of social media businesses like Facebook and Twitter have literally transformed the nature of modern communication and created an entirely new platform, and its contagious influential role is changing the face of Wall Street.

Whether the results of the social media companies will be part of a bubble to be burst remains to be seen, despite paralleling instances.