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13-06-2011, 07:48 AM
How do you price an IPO based on XX times revenues? This is incomprehensive to me. Only the expectation of profits is keeping the company going? 
Jun 13, 2011
CAI JIN
End to bull rally with tech bubble brewing?
Social networking stock craze eerily reminiscent of 1990s dot.com bubble
By Goh Eng Yeow, Senior Correspondent
HERE we go again.
Just over a decade ago, the local stock market turned frothy as investors were intoxicated by the Internet dot.com craze that hit town just as Asian economies were emerging from their worst financial crisis in a generation.
At that time, companies such as i-One.Net and Horizon.com had attracted hordes of buyers, but few remember them now. After the Internet bubble burst, they drifted off into the ether, as quickly as they had arrived.
Recently, history seems to be repeating itself. Sky-high valuations have been accorded to technology initial public offerings (IPOs) on Wall Street, as the United States and other developed countries emerge from a financial crunch which took their banking system to the brink of collapse in 2008.
But this phenomenon is not confined to Wall Street. In our midst, Catalist-listed and loss-making Artivision has been one roller-coaster ride over the past month. Its claim to fame lies in developing a computer application which allows Internet users to get advertising revenues on their online videos.
It has not mattered that the company had been bled dry by losses.
Speculation that Artivision had signed a deal with Internet giant Facebook sent its share price sky-rocketing from 4.5 cents in April to as high as 30 cents last month.
Despite a subsequent sell-off triggered by a year-end report card that showed it had sunk to a negative equity of almost $1 million, traders came swarming back last week, after learning of the company's plan to raise enough capital to keep itself afloat.
But a Kim Eng Research report recently observed that Artivision has yet to demonstrate the commercial benefits of its business model and 'may only be worth something to the right buyer'.
And therein lies the catch. Unlike Facebook or Google, which have their own platforms attracting millions of followers, Artivision's application, Advision, has to piggy-back on another website - Facebook - in order to attract users, and this makes it vulnerable.
However, that may be of little importance to the traders who traded hundreds of millions of its shares last week.
After all, the technological euphoria now sweeping Wall Street has emboldened many of them to believe that this time, it will really be different from the irrational exuberance that characterised the dot.com era which caused consider-able grief when its bubble burst.
The rise of online networking gave them grounds for optimism, as an estimated two billion people are connected to the Internet now, compared with the 250 million in 1999 when the dot.com craze was at its height.
Unlike the Internet frenzy a decade ago when any kind of business that used a computer could be rebranded as a 'dot.com' even before receiving a dollar of income, some would argue that this time around, the push is driven by companies hoping to profit from areas such as gaming, advertising and couponing, as social networking blooms.
Last month, Renren, the so-called Chinese Facebook, went public at 75 times revenues, with its shares rising as high as US$18 from its US$14 issue price, before tumbling to about US$9 last week.
Better still, Groupon, which offers online coupons, is valued at a potential price tag of US$15 billion (S$18.5 billion), by one estimate, even though it lost an eye-popping US$390 million last year and US$103 million in the first quarter of this year.
But there may be more than mere cursory similarities between the dot.com bubble a decade ago and the current tech craze.
The Internet craze back then had been fuelled largely by the US central bank's
ultra-loose monetary policy, as it unleashed a flood of liquidity into the financial system to fight a misconceived threat - the so-called Y2K bug - which arose out of fears that bank computers everywhere would crash on the last day of 1999.
Today, some would argue the love affair with social networking stocks has been nurtured by the flood of liquidity triggered by the US Fed's efforts to print over US$2 trillion in fresh money to try to restore the troubled US economy back to health.
There is another chilling parallel. When the dot.com bubble burst in 2000, it coincided with a spate of accounting scandals involving established names such as energy trader Enron and telco WorldCom, even though they were not linked to any Internet start-ups.
By sheer coincidence, the US is currently witnessing an epidemic of accounting irregularities involving Chinese firms listed there. In Singapore, we have our own list of accounting scandals to worry about. Auditors have uncovered irregularities in the books of four S-chips, as listed China plays are known here, since February.
It is a reflection that when there is too much money chasing after purportedly good stock ideas, even company bosses may be tempted to cook the books in order to make their companies more enticing to investors hungry for a higher return in a low interest rate environment.
But the dismal experiences from the dot.com bubble and the more recent global financial crisis suggest that extreme stock valuations may well presage that another financial storm may be brewing on the horizon.
Some will recall that penny stocks last enjoyed a spectacular rally in July 2007, as overall market volume reached a record 9.2 billion shares on a single day, just weeks before the US sub-prime crisis exploded.
Analysts are right to say that stock valuations on the local bourse are not stretched.
But when a loss-making counter such as Artivision single-handedly makes up more than 10 per cent of the total daily volume on the local bourse on some days, it may well be a signal that the two-year bull rally is ending.
engyeow@sph.com.sg
Cai Jin runs every Monday and covers financial matters and corporate governance issues that can affect investors. The two Chinese characters marry wealth with good fortune - the two crucial factors that any investor needs to prosper.
Jun 13, 2011
CAI JIN
End to bull rally with tech bubble brewing?
Social networking stock craze eerily reminiscent of 1990s dot.com bubble
By Goh Eng Yeow, Senior Correspondent
HERE we go again.
Just over a decade ago, the local stock market turned frothy as investors were intoxicated by the Internet dot.com craze that hit town just as Asian economies were emerging from their worst financial crisis in a generation.
At that time, companies such as i-One.Net and Horizon.com had attracted hordes of buyers, but few remember them now. After the Internet bubble burst, they drifted off into the ether, as quickly as they had arrived.
Recently, history seems to be repeating itself. Sky-high valuations have been accorded to technology initial public offerings (IPOs) on Wall Street, as the United States and other developed countries emerge from a financial crunch which took their banking system to the brink of collapse in 2008.
But this phenomenon is not confined to Wall Street. In our midst, Catalist-listed and loss-making Artivision has been one roller-coaster ride over the past month. Its claim to fame lies in developing a computer application which allows Internet users to get advertising revenues on their online videos.
It has not mattered that the company had been bled dry by losses.
Speculation that Artivision had signed a deal with Internet giant Facebook sent its share price sky-rocketing from 4.5 cents in April to as high as 30 cents last month.
Despite a subsequent sell-off triggered by a year-end report card that showed it had sunk to a negative equity of almost $1 million, traders came swarming back last week, after learning of the company's plan to raise enough capital to keep itself afloat.
But a Kim Eng Research report recently observed that Artivision has yet to demonstrate the commercial benefits of its business model and 'may only be worth something to the right buyer'.
And therein lies the catch. Unlike Facebook or Google, which have their own platforms attracting millions of followers, Artivision's application, Advision, has to piggy-back on another website - Facebook - in order to attract users, and this makes it vulnerable.
However, that may be of little importance to the traders who traded hundreds of millions of its shares last week.
After all, the technological euphoria now sweeping Wall Street has emboldened many of them to believe that this time, it will really be different from the irrational exuberance that characterised the dot.com era which caused consider-able grief when its bubble burst.
The rise of online networking gave them grounds for optimism, as an estimated two billion people are connected to the Internet now, compared with the 250 million in 1999 when the dot.com craze was at its height.
Unlike the Internet frenzy a decade ago when any kind of business that used a computer could be rebranded as a 'dot.com' even before receiving a dollar of income, some would argue that this time around, the push is driven by companies hoping to profit from areas such as gaming, advertising and couponing, as social networking blooms.
Last month, Renren, the so-called Chinese Facebook, went public at 75 times revenues, with its shares rising as high as US$18 from its US$14 issue price, before tumbling to about US$9 last week.
Better still, Groupon, which offers online coupons, is valued at a potential price tag of US$15 billion (S$18.5 billion), by one estimate, even though it lost an eye-popping US$390 million last year and US$103 million in the first quarter of this year.
But there may be more than mere cursory similarities between the dot.com bubble a decade ago and the current tech craze.
The Internet craze back then had been fuelled largely by the US central bank's
ultra-loose monetary policy, as it unleashed a flood of liquidity into the financial system to fight a misconceived threat - the so-called Y2K bug - which arose out of fears that bank computers everywhere would crash on the last day of 1999.
Today, some would argue the love affair with social networking stocks has been nurtured by the flood of liquidity triggered by the US Fed's efforts to print over US$2 trillion in fresh money to try to restore the troubled US economy back to health.
There is another chilling parallel. When the dot.com bubble burst in 2000, it coincided with a spate of accounting scandals involving established names such as energy trader Enron and telco WorldCom, even though they were not linked to any Internet start-ups.
By sheer coincidence, the US is currently witnessing an epidemic of accounting irregularities involving Chinese firms listed there. In Singapore, we have our own list of accounting scandals to worry about. Auditors have uncovered irregularities in the books of four S-chips, as listed China plays are known here, since February.
It is a reflection that when there is too much money chasing after purportedly good stock ideas, even company bosses may be tempted to cook the books in order to make their companies more enticing to investors hungry for a higher return in a low interest rate environment.
But the dismal experiences from the dot.com bubble and the more recent global financial crisis suggest that extreme stock valuations may well presage that another financial storm may be brewing on the horizon.
Some will recall that penny stocks last enjoyed a spectacular rally in July 2007, as overall market volume reached a record 9.2 billion shares on a single day, just weeks before the US sub-prime crisis exploded.
Analysts are right to say that stock valuations on the local bourse are not stretched.
But when a loss-making counter such as Artivision single-handedly makes up more than 10 per cent of the total daily volume on the local bourse on some days, it may well be a signal that the two-year bull rally is ending.
engyeow@sph.com.sg
Cai Jin runs every Monday and covers financial matters and corporate governance issues that can affect investors. The two Chinese characters marry wealth with good fortune - the two crucial factors that any investor needs to prosper.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
