Does IPO Fever Signal Another Tech Bubble?

After LinkedIn hit the IPO jackpot last month, it looks as though more web companies are lining up on the way to Wall Street hoping billions are in the future.

A quick glance at possible candidates to go public in the near future has some stout names: Zygna, Groupon, Facebook, Twitter, among others. These heavyweight companies should be able to reap billions from a stock offering, which has some critics wringing their hands that another web bubble could be coming.

We all remember the first web bubble right? There were a lot of companies who hit the IPO jackpot, and then faded away after producing a lot of noise, but nothing near a profit.

LinkedIn’s $9 billion haul caused the initial analysis, including a story by NPR headlined: “In LinkedIn IPO, Hints Of Another Tech Bubble?”

Analysts on Wall Street were just about ready to put a pin in LinkedIn’s bubble, as NPR explained: “We have a lot of echoes of 1999,” says Lee Simmons, an industry specialist at Hoover’s, a company that tracks IPOs. Simmons isn’t ready to declare a bubble, but he also thinks LinkedIn’s profits of $15.4 million last year don’t make it worth $9 billion.

The difference between LinkedIn, Groupon, Zygna and Facebook in this IPO bonanza, and the companies that flamed out in the early 2000s, is profit and assets.

Sure, LinkedIn may have only made $15.4 million last year, but it made something, unlike many of the “forever-in-the-red” speculators of the first web bubble. That’s where the difference lies between these two eras. In the first tech era, montetizing was a goal, but a far off one.

This time around, with the muscle of social media driving consumer interest and frenzy, rather than actual dollars and cents.

While their valuations may still exceed earnings, companies like Facebook are earning money by selling advertising content. And, like LinkedIn, they sit on the incredible asset of huge amounts of consumer data.

A blog by CBS Marketwatch’s Cody Willard put it this way:

“If we’re truly headed into a bubble and Facebook’s truly got more information about almost every affluent and tech-savvy person in this country and much of the rest of the world and Facebook starts leveraging their incredible traffic trends to create billion dollar revenue lines…it’s not impossible.”

Facebook will surely set off a rocketing IPO, if and when it ever decides to step up to the plate and go public, it’s not beyond reality to think they could be leveraging a billion users of their site by that time. All that data, and all of the targeted advertising that can grow from it, makes Facebook a bargain at whatever the price comes in at.

Zynga, the social gaming company that ties its fortunes to Facebook, made a $400 million profit in 2010, putting it well ahead of any speculative value that defined the last bubble.

While the debate rages, these new companies will continue to build their customer bases and expand their revenue streams. And in the end, that will determine their real value.

As Peter Pachal wrote in PC Magazine about Zynga:

“Whether there’s a bubble or not, Zynga has clearly built a big business on games like CityVille, Poker, and Mafia Wars. It may be entering an investment atmosphere of hype and possible overvaluation, but as long as millions keep using its products, the game will play on.”

About Mike Koehler

Mike Koehler is the New Media Director for Schnake Turnbo Frank | PR, the largest and oldest public relations firm in Oklahoma. Mike consults with clients about the best use of tools on the Internet, Web strategy and social media policy. Mike blogs regularly at and is working on his first book to be published in 2010. Mike lives in Oklahoma City with his wife and three kids.

You can find Mike on Twitter: @mkokc.

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