The year 2013 has witnessed one of the most over-hyped IPOs of 2013: Twitter (NYSE:TWTR). Internet stocks in general too have been hot and high the entire year. The year saw modest growth in revenues and investors bet on growth expectations. NASDAQ internet stocks index- QNET has increased by 58% in the last 52 weeks, almost double that the NASDAQ composite growth of 28%. More often than not, the price surge in 2013 is compared to the 1999 internet bubble bust. However, contrary to the 1999 internet bubble of high-valued IPO stocks which has nothing more than a good idea, the internet stocks today have good business models as well as revenue and earnings to report.
While some stocks have tripled the past year, some are also in the red. We review whether the price change of the top gainers and the top losers are justified by growth in their fundamentals, or is it another dot com bubble in making?
Top Stocks Of 2013: Gainers
|Top Internet Gainers of 2013||Jan 7, 2013 to Jan 7, 2014|
|Price change (%)||Avg Revenue Gr. 2013 (%)|
It would be worth mentioning that YY Inc, a Chinese online social platform, which has tripled its price in 1 year, has more than doubled in revenue in the first three quarters of 2013. YY was included in our stock picks for a prior quarter in 2013.
The price jump of 320% of Responsys Inc (NASDAQ:MKTG) is mostly the result of its announced acquisition by tech giant Oracle, and not really backed by financials. Both Pandora and Zillow, despite having decent revenue growth, have not yet turn profitable, and are risky investments at their current valuations.
Top Stocks Of 2013: Revenue Performers
|Avg Revenue Gr. in 2013||1 Year Price Change|
YY has outperformed the 81 stocks included in the QNET, internet stocks index followed by a high run in stock prices. NQ Mobile had a roller coaster ride this year, with investors distrusting their cash balances. However investors recovered from this news with stock prices ending with 150% growth for the year, accompanied by 109% growth in revenues. Though QIHU has registered a robust revenue growth of 97%, its current price to earnings multiple of 109x, is too high for our comfort. We at Amigobulls prefer companies with strong cash flows and healthy earnings. We believe long term stock investment is not about picking the highest gaining stocks but picking long term winners with reasonably low risk. You can see the list of our stock picks.
Top Stocks: Losers Of 2013
|Price Change (%)||Avg Revenue Gr. in 2013|
Amidst the Bull Run for internet stocks in 2013, a few stocks have taken a dive at lower levels. Both RAX and ELNK took the hit probably due to Google’s push into cloud computing services, creating a scare amongst investors.
2014 Outlook for Tech Stocks
We expect correction for the over hyped stocks, which have had a bull run based on growth in their top line rather than bottom line. Twitter’s over hyped IPO in November 2013, has registered 238% price gain since its IPO. We do believe that the Twitter stock price bubble will burst, and the stock will undergo significant correction to its price.
This year investors are anticipating big IPOs, like Alibaba, Box and Dropbox. It would turn out to be a good year, if we see valuation which are in line with fundamentals. Else, it would be a year leading to yet another internet bubble.
Updates as of December 28, 2014
- Alibaba IPO was one of the biggest tech IPOs of 2014 overshadowing that of Facebook also. The Jack Ma led company raised a whopping $25 billion. Alibaba IPO ended day one of trading with a 38% gain from BABA stock price of $68 per share. Read our analysis of Alibaba IPO valuation.
- Unfortunately the BOX IPO did not take place in 2014 even though the company filed for one way back in March 2014. The Box IPO is expected to take place this year. With net losses to the tune of 80% and slowing revenue growth the company, it is not the best time for the company to go public. Read our coverage of what to expect from the Box IPO.
- The dominant cloud storage services provider Dropbox is also expected to go public this year. Even though the company has increased revenues and user base significantly, steep valuations might not leave much of an upside for investors. Read about Dropbox stock price estimates for IPO and our analysis of Dropbox IPO valuation.