I believe what is currently happening in the social media space is akin to the internet bubble in 1999. Bubbles are always based on an underlying truth (i.e. the internet will change the world) - and a subset of companies will have their valuation taken to the moon, until one day reality sets in. That reality could be in 9 months or 3 years - who knows. All we do know now is the valuation of the Twitter's, Groupon's and Facebook's of the world seemingly increase by 20% a month in the private market. [Feb 10, 2011: Social Media Bubble Grows as Twitter Valuation Doubles in 2 Months] [Dec 31, 2010: NYT Dealbook - New Round of Financing for Groupon Sets Stage for Late 2011 IPO] What makes this go around interesting is the majority of the social media troupe is still private, so we have a plethora of once in a lifetime IPOs still to come - perhaps the IPO of Facebook circa 2012-13 will mark the top of this era. Whatever the case the investment methodology for this type of move definitely is not textbook - you just buy with no regard to valuation, until someday it all comes tumbling down. While that sounds facetious that's really how a lot of people are treating it. It worked in 1999... as long as you did not get the last chair.
Jim Cramer (for all the hysterics) spoke about this last evening on Mad Money via the lens of Sina.com (SINA). I can't really justify the valuation of the name anymore on earnings (despite being a bull), as it is now being priced on the potential of the Chinese Twitter Weibo. Indeed, an analyst came out yesterday giving a $200 price target. However, compared to some of the other companies being bid to the stratosphere such as the YouTube of China aka Youku.com (YOKU), something like Sina or Baidu (BIDU) could be considered a 'value' stock. These all just turn into momentum plays at times like this.
This video by Cramer is actually worth listening to, because it explains what the thinking is for those playing in this group of stocks is, rather than what you read in a textbook about what the stock market is all about.
- In some ways, Cramer thinks social media is similar to the dot-com bubble. Those who get in on social media names early could make a killing, he said, so long as they take profits on the way up and don't get too greedy.
- Based in Shanghai, Sina gets the majority of its business from display advertising. Cramer likes that model being as advertising dollars continue to migrate online from print media. What's driving Sina's stock higher, though, is Weibo. The microblog site is similar to Twitter and boasts more than 500 million active users. In addition, Cramer thinks Weibo is a budding online ecosystem. After having launched in December 2010, the site has more than 500 applications. Sina also has 90 percent market share by total hours spent on all microblog services.
- When it comes to real metrics, though, Cramer said it will take Sina at least 18 months to monetize Weibo. Once they do, he thinks it could be huge given the number of users and amount of time spent on the site. In addition, its users tend to be relatively wealthy, which is something advertisers love. That said, Cramer thinks now is the time to invest in Sina. Cramer acknowledged that Sina has already posted a 200 percent gain in the last year. He doesn't think that means investors have missed out, though.