After the introduction of LinkedIn, Ren Ren and Pandora at the stock exchange and the announcement of Groupon and Facebook to go public, these companies offer opportunities for investors. Often, these companies are estimated at a high value, before going public.

According to ‘The Financieel Dagblad’ (Thursday June 16th 2011) there is some sort of hype regarding these companies: many internet companies make no or just a little profit and the profit margins become smaller due to competition and low entry barriers. Notwithstanding, they are popular among investors.
What we often see is that at the initial public offering the value of the shares increases rapidly and thereafter slowly decline. Analysts fear that high expectations and low profitability of the internet companies can create a second internet bubble. World Online and other internet companies boomed at the end of the 90s, but then the bubble burst in 1999/2000 and this led to many bankruptcies.

However, there are also some internet companies that did meet the expectations of investors. A good example is Google: many people thought that Google was a big bubble, but that did not happen. Investors could not get an understanding of how Google made its money, but currently the value of a share is 20-fold the profit of Google. Some internet companies are very successful and are profitable, but is it wise to buy shares of these money makers?
Critics doubt the sustainability of the used models. Sometimes an increase in users or customers seems to be attractive, but this can also lead to additional costs which pressure the profitability. There is always a possibility that there is a second Google among these companies, but there is a lot of uncertainty in this industry. As we would say: an exception would confirm the rule and everyone knows how the last bubble burst.