Investors are often attracted to sexy, high-profile tech stocks, but not all of them are going to reach the towering heights of iPhone maker Apple or search engine giant Google.
Facebook’s coming public stock offering has generated so much hype that it’s expected to be difficult for average investors to initially buy shares and few, if any, are expected to be available in Canada.
Professional networking site LinkedIn, online coupon site Groupon, online review site Yelp, or Zynga – the largest maker of games for Facebook – are known through their popularity on the Internet and now are publicly traded companies whose stocks have all fluctuated.
“For everyone that makes it, there are many that don’t,” said ScotiaMcLeod wealth adviser Chris Kuflik.
“People really need to do their due diligence,” Mr. Kuflik said. “There’s always lots of interesting things happening in tech outside Facebook, Groupon or LinkedIn.”
Economist Mike Moffatt of Western University said while Apple and Google are well-established, profitable companies, it’s not clear if other high-profile tech companies, including Facebook, are going to generate revenues in the long run to pay for their expenses.
Depending on market reaction to the initial public offering, California-based Facebook could be valued at $100-billion (U.S.) or more with an estimated share price of between $30 to $35.
“There’s a lot of exuberance out there and you could call it irrational,” Mr. Moffatt said of Facebook. “Some of these valuations leave me scratching my head,” said Mr. Moffatt, who teaches at the Richard Ivey School of Business in London, Ont.
“A few of these, I think, are certainly going to be the next Pets.com and it’s just sort of figuring out which one.”
Pets.com is an oft-cited example of the dot-com bust of more than a decade ago. It was a publicly traded company that offered free online shipping of pet supplies and accessories. The company folded in 2000 after being unable to turn a profit.
Internet marketing expert John Pliniussen said he supports investing in social media-based companies, adding it takes investors to make these companies grow.
“I believe this is simply a new way of doing business,” said Mr. Pliniussen, an associate professor at Queen’s University in Kingston.
Social media has changed people’s habits and investing in these kinds of companies is here to stay, he said.
“I can’t think of anyone who’s serious about their career who’s not on LinkedIn. I can’t think of anyone who is serious about a relationship who doesn’t try online dating.”
Mr. Moffatt said he would encourage investors to look at tech companies that “don’t do particularly sexy things” that have growth potential.
“Those are the ones I would be looking at. They’re naturally high risk, but you can diversify.”