After Web stocks boom, investors wary but rout unlikely

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Shares of many companies doubled as revenue climbed and on forecasts for rip-roaring growth in earnings (Reuters) Shares of many companies doubled as revenue climbed and on forecasts for rip-roaring growth in earnings (Reuters)
SummaryFacebook, Google and Netflix are among internet companies set to finish 2013 at or near record highs

For investors in internet stocks, it was a banner year: shares of many companies doubled as revenue climbed and on forecasts for rip-roaring growth in earnings. But the gains haven't been anxiety-free, thanks to uncomfortable memories of the 1999 Internet bubble and subsequent bust.

Market strategists and tech experts say the comparison is overblown. While there is the potential for a decline in some Web company stock prices that are out of line with their earnings outlook, they say there is little chance of a bloody retreat.

Most importantly, this year's stars, such as Facebook and Netflix, actually make money. Many of the web companies that were emblems of the previous era had little prospect of ever being profitable and some hardly had any revenue - basing their boasting on non-financial metrics such as numbers of eyeballs, or page clicks.

The Internet and the ways people use and access it have been transformed in the past 14 years. In 1999, it was mainly through slow dial-up services using a desktop computer, now there is faster broadband and mobile access from phones and tablets. Web-based advertising has grown into a mature, viable business, and computing speeds support video and sophisticated gaming.

The market is much more rational than it was in 1999, argues Jeff Dachis, who co-founded and was chief executive of Razorfish, an online ad firm that went public in 1999, and is now part of France's Publicis Groupe.

"What you had then was 100 times the volume of stock with little to none of the credibility or weight in the marketplace that a Facebook or a Twitter has today," said Dachis. "Nobody denies now the growth of online advertising or digital marketing."

WARNING SIGNS

Facebook, Google and Netflix are among the internet companies set to finish 2013 at or near record highs. Less-weighty Web companies such as Yelp and Pandora saw their shares triple.

That is not to say there aren't warning signs. The 160-percent gain in shares of Twitter since its November initial public offering raises awkward questions about the levels of speculative froth given the company has not yet earned a cent.

Also, consumer names like Snapchat and Pinterest are raising eyebrows by garnering millions of dollars in financing at multi-billion dollar valuations - despite being decidedly in the red.

According to CB Insights, there are 26 U.S. tech companies that have raised financing at valuations of $1 billion or more and that could go public

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