PwC: This Is Not A Bubble, Valuations May Be Justified


Credit: Getty Images / Matt Cardy

Facebook for $80 billion? LinkedIn (NYSE: LNKD) at $9 billion?

“There does not appear to be a bubble forming for the technology sector as a whole, and there also appears to be some support for the valuations of social media sites,” says PricewaterhouseCoopers’ technology valuations specialist Simon Harris, who just published PwC’s latest Valuation Index…

According to the index:

“At the height of the tech boom in 2000, Price/Earnings (PE) ratios for UK listed technology companies peaked at close to 90x, compared to a wider multiple of around 25x for the market as a whole.

“Today, the PE ratio for listed technology companies of 16x is only slightly higher than for the overall market multiple of 15x, with a similar picture in the US. So a bubble does not seem to be forming for the technology sector as a whole, certainly for quoted businesses.”

PwC shows that PE for listed technology companies has actually crashed since 1999…

But the accounting firm acknowledges that, for businesses in sectors like social media, PE is not necessarily the best metric on which to draw valuations – nor, therefore, on which to call a bubble. PwC partner Ian Coleman says: “When you look at value per user metrics, the valuations for some of these businesses begin to make more sense.” So they have picked another metric – value per user…

Harris: “Google (NSDQ: GOOG) was trading on very high multiples after its IPO and is now a hugely successful company, so high PE multiples should not necessarily be taken as an indicator of a business being overvalued.”

From the index: “It is perhaps unsurprising that some commentators have seen these rapidly growing valuations of social media sites as indicators of a bubble developing in the subsector, but the evidence from listed technology companies does not support this.”


Tim Egan

This is a monumental shift in audience behaviour. The top social websites are at the forefront of a revolution and may well (if they dont mess up) prove to BE the media for the next decade or more. As such the valuations are just gamblings on value and may well be justified.

Nigel Scott

The problem with the PWC calculations is the ARPU for the Telco industry is about 600x that of the social media industry. So if we take the Vodafone valuation as the benchmark we discover the estimated value per user for a social media property should be closer to 50 pence. Further reading

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