“It’s déjà vu all over again.” –Yogi Berra
Let’s look back for a moment on a few flameouts from the late 1990s tech stock craze:
- The Internet community site theglobe.com set a record in November 1998 with an initial public offering (IPO) that soared 606% on its first day of trading. Despite that strong debut, it was delisted from the NASDAQ in April 2001 and today is a shell company with no significant assets or revenue.
- Pets.com (remember the “Sock Puppet?”) appeared in a Super Bowl commercial in 2000 and received $300 million in funding. It went public in February 2000 and was bankrupt just nine months later.
- The online toy seller eToys went public in 1999 and rose 280% on its first day. At its peak, the company was valued at more than $8 billion. It went bankrupt in March 2001.
Last week, we witnessed a late 1990s “déjà vu moment” with the IPO of LinkedIn, one of a new crop of social-media companies like Facebook, Groupon, and Twitter that are generating excitement among the investing public, according to MarketWatch and Barron’s. LinkedIn soared more than 100% on its opening day and finished the week with a market value of $8.8 billion, according to Bloomberg. Not bad for a company, “that doesn’t expect to be profitable this year, as it ‘invests for future growth,” according to Barron’s.
While it may be fun to marvel at the explosive debut of LinkedIn, we are not yet close to the heady days of 1999 when 308 technology companies went public, according to The New York Times. By comparison, in 2010, only 20 technology companies went public.
One of the keys to success as an investor is to pay attention and learn from the past. The stock market was “irrationally exuberant” in 1999 as evidenced by its subsequent collapse over the next three years. Is the euphoria over LinkedIn an early sign of the next “irrationally exuberant” market?
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