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

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.”