Number of Tech and Communications IPOs: 34
There's growing buzz about a new bubble in dot-com stocks, and Facebook threw a little gasoline on the fire last week. The company's filing for an initial public offering generated enthusiasm from investors eager to get a piece of the world's largest social-networking company. The IPO could drive Facebook's market valuation as high as $100 billion, making it one of the world's most valuable technology firms. It's not all about Facebook, however. There's been a wave of social media IPOs in the past year, including Groupon, LinkedIn and Zynga. Other big names, such as Twitter and LivingSocial, may also seek to tap public markets.
Photograph by Marilynn K. Yee/The New York Times/Redux
Why It Matters
While only seven technology or communications companies filed for IPOs in 2008, 34 IPOs were filed in 2011 and according to data compiled by Bloomberg, another 14 web-related companies are planning sales in 2012 which could raise $11 billion -- the most since the $18.5 billion of IPOs in 1999. Because many see social media as "the next big thing," there are fears that the market is being gripped again by "irrational exuberance," the phrase coined by Alan Greenspan in the late 1990s. Amplifying this worry: The Fed says it may keep interest rates at record lows through 2014, which skeptics argue could inflate another bubble.
Graphic by Charlos Gary/Bloomberg
What It Means for Your Portfolio
While buying shares of IPOs always comes with risk, worry about a bubble could be overrated. In 2011 the Bloomberg IPO Index, which measures the performance of stocks during their first year after going public, fell 22 percent. The 34 technology/communications IPOs in 2011 were but a sliver of the 344 filed in in 1999, and today these two sectors comprise 25 percent of the S&P 500, compared to 41 percent at the end of 1999. If there's a bubble today, in other words, it's probably not a very big one.
Photograph by Peter DaSilva/EPA/Landov