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Initial Public Offerings in 2014: are we facing a new dot-com bubble?

Published on 04/06/2014

Are we facing a new dot-com bubble? Let’s go back in History. Last century ended with a torrent of IPOs of Internet companies that crushed as quickly as it had emerged. Just to get a clear picture: in only two years, the abrupt bubble burst caused the market to lose about five trillion dollars due to the stock-market crash of companies like Yahoo, eToys or Boo.com.

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Now, while economies around the world are trying to regroup after the most devastating financial crisis since 1929, a new revolution in technology companies is brewing. These are companies with high growth expectations and which generate wealth and thousands of jobs.

Last year, Twitter primed the pump in one of the most longed-for operations in recent years. And 2014 seems to be the turn of small technology start-ups in search of prominence in the market.

In Spain, the travel company eDreams has set a milestone as the first ever technology company to make its debut on the stock market in our country, thus breaking three years of drought since the departure of Bankia in the summer of 2011. This is the first IPO of an Internet start-up and, since its release, eDreams has been placed on the list of the 50 companies with the highest market capitalization in Spain. Will it be part of the Ibex 35 in the not so distant future? The revenue growth rate of the company since its creation in 2000 encourages us to think so.

Bravofly Flights, eDreams’ competitor, has followed the latter’s tailwind by debuting on the Zurich stock exchange on April 15th. Both companies started their adventure with significant market falls but have been recovering value over the sessions. Softonic is also on the starting line and could take the plunge and go public in a relatively short time.

The opportunities offered by these companies are very appealing. The large revenues that technological development can generate are on their side. Nevertheless, we should not ignore the threats and risks that they face. The fear of another technology bubble is latent among investors. Some are even begining to see similarities with what happened in 2000. Nasdaq lost 7% since hitting a record high in early March. The key is in the doubts about the possible overrating of companies which market an intangible asset, hence the existing fear of an inflated price.

Just ask King Entertainment, the developer of the well-known game Candy Crush. Just a month ago, this company starred the worst IPO of 2014 in New York, with a drop of more than 15 % in its first day of trading.

However, there are remarkable examples of high stakes on these companies. Proof of this was the purchase, a few months ago, of WhatsApp by Facebook, which fueled the debate on the value of these businesses. Zukerberg paid a whopping $19 bn for a company that has just 50 employees.

Beyond the shadow of a doubt, this is an interesting chapter for dot-coms, whose performance in the trading floor will generate much excitement. We will be vigilant.

Rodrigo Prieto, Accounts executive. Financial Communication Division

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