Trying to follow the fortunes of the technology sector on Wall Street is enough to give you a case of virtual whiplash. Venture-backed IPOs have been all the rage, with 36 such initial public offerings in the first three months of the year. And viral-image-sharing site Imgur landed $40 million in investment capital last week from venture capital firm Andreessen Horowitz.
And yet, NASDAQ is down 5 percent from its March 5 high as such companies as Netflix (NFLX) and TripAdvisor (TRIP) dropped 4.9 percent and 6.1 percent, respectively, on Friday alone. Other big-name tech stocks that are off include Amazon (AMZN), Google (GOOG) and Facebook (FB).
What's going on? It might all come down to Facebook, for a couple of different reasons. On the positive side, new companies are benefiting from post-Facebook-IPO relief as Zuckerberg & Co. rebounded smartly from the IPO debacle. Now, more investors want a crack at another big payoff.
More recently, some other newly minted public companies have showed more stock price resilience and promise, and investor demand for potentially hot shares has increased, as did prices. Witness Friday's rocket launch for GrubHub (GRUB), the online restaurant delivery service, which leaped some 31% in its first-day trading.
Facebook also helped trigger the hot demand for startups as takeover targets. It snapped up Instagram for $1.1 billion, a number that would soon seem like chump change, given the $19 billion Facebook forked over for mobile instant messaging company WhatsApp and the $2 billion it paid for Oculus VR, a virtual reality hardware vendor that has yet to ship a product.
Google, Apple (AAPL) and others have also been vying for startups, either to extend their own offerings and, hopefully, their relevance, or to obtain technical talent that's in great demand in Silicon Valley. If a company sells for hundreds of millions of dollars or more, then a venture investment of $40 million suddenly seems like a good deal.
And yet, the results of some established tech companies raise the question of whether the enthusiasm for early-stage companies will bear long-term fruit. While tech stocks got hammered nearly across the board on Friday, Facebook was particularly hard hit as investors suddenly wondered if all its pricey deals would pay off.
It takes continued revenue, profits and growth to go the distance. For all the excitement, duds still happen. Take King Digital (KING), maker of the game Candy Crush, which had an IPO last week. The stock immediately plummeted below the initial price and is still under.
A little care, and a little research, are much better friends to the average investor than trends and fads that can turn on you. Nasdaq's current swoon is a stark reminder of that.