Is this the second great tech bust?

The collapse in the share prices of Facebook and a host of other internet stocks has led some to wonder whether social networking has lost its sparkle.

"Another couple of days like this and the great technology bubble of 2012 might recede into history," say David Streitfeld and Evelyn M Rusli in the International Herald Tribune. Shares in the American companies that were meant to mark a new "internet era" slid last week following analyst downgrades. Investors now fear they could see a repeat of the 2000 crash, "when money stopped flowing, the dotcoms crumbled and Silicon Valley devolved into recriminations and lawsuits".

Facebook flops further

Facebook shares fell 12% on Friday following disappointing maiden earnings. The company, which was valued at $100bn at its initial public offering (IPO) in May, is "now a $65bn company and headed south". "This is proof that there is a social media bubble," Ian Maude, head of internet at Enders Analysis told "People bought shares at those inflated prices based on the idea that Facebook was the new Google. It isn't."

Social games provider Zynga, which operates on Facebook's platform, also saw its shares collapse by 40% last week after second-quarter figures missed forecasts and it lowered its earning outlook. The company blamed Facebook for its woes, claiming that the social network promoted competitors' games to its users over Zynga's games. Shares in online voucher company Groupon and streaming video provider Netflix were also under pressure.

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Social media is losing its shine

Although social media is supposedly "flourishing", with a billion people on Facebook and 500 million on Twitter, many internet companies are struggling to make money from smart-phone users. Facebook's "biggest problem is monetising mobile", says Maude. As more of its users access the site via handheld devices, the social network "must prove it can monetise mobile if it is to grow revenues", he says.

However, Facebook admits that it has not yet developed a mobile advertising strategy, says Emma Barnett on, while smartphone and tablet application user numbers are growing faster than the number of advertisements it is serving up.


Institutional investors have become increasingly sceptical of new social media investment opportunities and are offering much lower earnings multiples. "The gleam has come off the word social'," Ben Schachter, analyst at MacquarieGroup told the International Herald Tribune. "The ground is shifting underneath these companies' feet at a speed that we didn't see even in the late 1990s."

Despite the share-price falls, "it is not yet March 2000 when technology stocks went into freefall", notes the International Herald Tribune "old-line companies", such as Apple, Google and, are "doing fine". However, shareholders are questioning whether company chief executives and early stage investors were "a little too eager to cash in just as they did 12 years ago".

Follow the smart money out

However, the smart money has long been in the private markets, says Felix Salmon on, due to the "sluggishness" of public technology valuations. "All the top technology investors have movedto the private markets," he says.

"If you're in the public markets, your performance has been mediocre for over a decade and you're liable to take any brief buzz-induced inflow of funds into the sector as an opportunity to cash out." It was "a bit ridiculous", he adds, to hope that Facebook's IPO would change the sector's momentum, even if it had gone well.

"The tech sector mightbegin a rally at some point," he says. "But the chances are that that point won't come until after Silicon Valley's VCs [venture capitalists] have been properly chastened."