Will Tech Save the Day?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
I've heard it said before that the tech sector tends to lead the way when true economic recovery starts after a recession. If this is true then companies such as Apple (NASDAQ: AAPL) and its powerhouse stock are making a strong case that recovery is right around the corner, though of course not every tech company is doing so well. Still, there does seem to be a correlation as the tech sector continues to climb as unemployment claims begin to drop.
The emergence (or reemergence, as it may be) of tech as one of the most powerful sectors of the market may seem a bit troubling to some who remember the dot-com bust of the 90's. While there are tried-and-true tech companies such as Apple and Google (NASDAQ: GOOG) leading the charge, there are also a number of smaller Internet IPOs that have started trading within the last year. Companies such as Zynga (NASDAQ: ZNGA) and Groupon (NASDAQ: GRPN) have suffered their fair share of criticism and not enough time has passed to see whether they will succeed in spite of their critics or fail as the critics rejoice.
Google, of course, is a favorite of many tech investors because of its complete domination of the search engine market. The company has been expanding into other areas for several years and is now a major force in email, online maps and even web browsers with its Chrome browser. The open-source Android operating system allowed Google to make the leap to mobile software as well, just as the ChromeOS operating system on the company's Chromebook netbooks has expanded its presence. With the company now poised to make the leap into Google-branded mobile hardware, Google is poised to survive regardless of whether the current tech sector situation turns into another burst bubble. The company may not strike gold with its every attempt but when it does it strikes big.
Zynga and Groupon, on the other hand, are much less likely to survive of the tech market crashes. Zynga performed better than expected when it released its first quarterly earnings report, but the company still reported a loss. Profits continue to climb and the company is actively trying to bring new players in to its games, so there may still be hope for investors waiting to see if the game maker turns a profit. Groupon might have a harder row to hoe as some consumers find the company to be a fading fad and an increasing number of retailers and other businesses claim that associating with the company's promotions has actually harmed their business.
More tech IPOs are coming, too. Brightcove Inc. (NASDAQ: BCOV), a company that produces cloud-based video streaming services, debuted on February 17th to a decent amount of fanfare that drove stock prices up several dollars; given the amount of focus that cloud computing and video services are getting in the business world, Brightcove stands poised to do fairly well provided that it can find a way to promote itself as an alternative to existing video services. And then there's the much-anticipated Facebook IPO which may bring the value of the social networking company up to $100 billion with what will be the largest IPO since Google went public in 2004.
While it's understandable to be concerned that the large number of IPOs and the tech dominance of the market could wind up creating another dot-com bubble, it's important to remember that there are a few differences in the current situation and that which occurred in the 90's. Several of the major players in the current tech surge are well-established companies; it's unlikely that Apple, Google, and Facebook are just going to disappear overnight. The current batch of IPOs are also being made based upon the success of existing websites as opposed to being made in an effort to capitalize on the developing Internet "fad." While not all of the recent IPOs will be around for as long as their founders hope, it's entirely likely that some of the recent and upcoming IPOs will remain tech sector players for years to come.
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