SAN FRANCISCO — Internet stocks are heating up again, just as Twitter is preparing to turn up the temperature with its highly anticipated IPO.
Consider what’s happened in the past month: The once-scorned stocks of Netflix and Facebook have soared to new highs; Yahoo’s long-languishing stock has regained its vigor and surpassed $34 for the first time in nearly six years; enamored investors just poured more than $1.7 billion into secondary stock offerings by LinkedIn and Pandora Media Inc.; and Priceline.com’s stock recently broke $1,000, catapulting past its peak reached in 1999 during the dot-com boom.
“There is great demand right now to invest in companies that could be powering the future, but it’s a window of opportunity that won’t last forever,” says BGC Financial analyst Colin Gillis.
As hot as some Internet stocks are, the fervor is nothing like it was in the late 1990s when investors minted dozens of unprofitable companies with rich market values.
“The difference is that investors today are investing on value rather than on emotion and hype, as was the case in 1998 to 2000,” says Jeff Corbin, CEO of investor relations consultant KCSA Strategic Communications.
Many of today’s investors are judging Internet companies on their individual merits and prospects for growth. “Back then,” says Corbin, “just by including the word âInternet’ in a company description or name gave rise to a multi-million if not billion-dollar valuation.”
Dan Appelman, 54, is a longtime investor in technology who views the current run-up in Internet stocks as a reflection of the ever-expanding role online services play in people’s lives. “The Internet is everywhere now, and that wasn’t the case in 2000,” Appelman says. “It has become like electricity or plumbing.”
Twitter couldn’t have chosen a better moment to join the party. The timing proved to be ideal for recent IPOs by Rocket Fuel Inc., a company that uses artificial intelligence software to distribute digital ads, and FireEye Inc., a maker of computer security software. The stocks of both Silicon Valley companies nearly doubled in their Sept. 20 trading debuts.
Twitter hasn’t set a timetable for its IPO since announcing its plans to go public in a Sept. 12 tweet. Most analysts expect the San Francisco company to complete the process in November or December.
Wall Street’s current infatuation with Facebook Inc.’s social network and LinkedIn Corp.’s online professional network bodes well for Twitter. Like Facebook and LinkedIn, Twitter runs a bustling service that relies on free content posted by its users.
With about 200 million users, Twitter is the smallest of the bunch, based on the company’s most recent disclosures about its size. LinkedIn has nearly 240 million users while Facebook boasts nearly 1.2 billion active users.
That gap leaves Twitter more room to grow, a prospect that typically appeals to investors.
Twitter’s initial public offering will go well if it can feed off of the momentum of Facebook and LinkedIn, whose stocks have more than doubled in value during the past year. The Standard & Poor’s 500 index has risen 17 percent during the same period.
For LinkedIn, the gains extended a phenomenal run that began the day it went public in May 2011 at $45 per share. The Mountain View, Calif., company’s stock has never fallen below its IPO price and it’s now hovering around $250. LinkedIn has won over investors by fueling the belief that its service has transformed the way employers find and recruit workers. The company has also topped analysts’ financial forecasts every quarter since its IPO.
LinkedIn seized on the voracious appetite for its stock by selling as many as 6.2 million shares for $223 apiece in its secondary offering this month. After expenses, LinkedIn will receive up to $1.35 billion, more than five times the amount the company raked in from its IPO.
Facebook’s stock has rebounded, too. As soon as it began trading in May 2012, the stock took a turbulent descent triggered by the social network’s slowing growth as well as doubts about the company’s ability to figure out how to sell and show ads on mobile devices. By last September, Facebook’s stock had lost more than half its value from its IPO price of $38.
The skepticism evaporated two months ago after Facebook’s latest quarterly results showed that more than 40 percent of the company’s ad sales are now being made on smartphones and tablets, up from virtually nothing at the same time last year. Facebook’s stock hit a new high of $51.60 earlier this week.
Here’s another sign that Wall Street is still treading more cautiously than it did during the dot-com boom: Although the bellwether Standard & Poor’s 500 and closely watched Dow Jones industrial average both set records last month, the technology-driven Nasdaq composite index remains about 25 percent below its all-time high of 5,132.52 reached in March 2000.
Online travel service Priceline.com Inc. was among the biggest beneficiaries of late 1990s giddiness. Shortly after it went public in March 1999, Priceline’s stock soared to a split-adjusted $990, even though the Norwalk, Conn., company had a history of uninterrupted of losses. Priceline has now established itself as a consistent moneymaker with profits of more than $4 billion during the past five-and-a-half years. The pattern of rising earnings helped lift Priceline’s stock past $1,000 for the first time last month.