Can we equate today’s social IPO to the dot-com bubble?

Social media companies such as Pinterest and Twitter aren’t yet profitable, but have investors

Twitter, a company that routinely loses money from one quarter to the next, will be valued between $10 billion and $15 billion when it goes public in the next few days.

• Facebook, which stumbled badly out of the IPO gate, earned just one cent per share in 2012. But investors, thrilled to see that paltry penny per share climb to nearly a penny and a half in 2013, say the company is worth more than $100 billion.
• Pinterest, with no perceptible revenue, just raised $225 million in venture capital. This has resulted in a $3.8 billion valuation, just eight months after it raked in $200 million on a $2.5 billion valuation.
• Ephemeral social networking app Snapchat has jumped from a valuation rumored earlier this year at around $800 million to a jaw-dropping $3.5 billion. It has 26 million users and no revenue. None.
• Even quiet, little Nextdoor, a San Francisco-based social network for neighborhoods, has snagged $60 million in venture funding on an estimated $600 million valuation — also on a big goose egg of revenue.

The whopping valuations we’re seeing in social media stocks make me think that investors need to blow the dust off their notes from Financial Analysis 101. Whatever happened to good-old price-to-earnings ratios and earnings per share? Sure, these companies are the very definition of disruptive players, but anyone who takes actual value into consideration — you know, that thing we used to call “profit” — simply cannot take these prices seriously.

It’s all sounding way too 1999.

Remember the dot-com bubble? Analysts back then urged investors to look at “eyeballs” attracted to web sites, not at any actual bottom line. Growth first, they said. Mindshare is more valuable than market share, they argued. Get the clicks and everything else will fall into place.

Today’s excitement over “active users” is no different than the horse-trading over “eyeballs” was back then. I remember when Amazon was trading at a share price that could only be justified if the company could rake in revenues at some significant percentage of the U.S. gross domestic product. They were shipping deeply discounted, 95-pound lawnmowers overnight for free. I know. I bought one.

Back in 1999, if you asked about business models, you were told what a company was doing to attract attention — not dollars. If we build it, the dot-com stars insisted, the eyeballs will come and the dollars will naturally follow.

If you pushed a bit, they would tell you about the fortune they were going to make by monetizing interstitials. Wait — what? A word previously useful only in the realm of biology and chemistry — literally, a very small intervening space — became the pot of gold at the end of sock puppet rainbows.

It all boiled down to way too many companies chasing far too few advertising dollars.

Fast-forward to 2013. The companies going for their IPOs are older and, perhaps, wiser than the upstarts of the first dot-com era. But, particularly when it comes to social media companies, the price-to-earnings ratios aren’t much more realistic than they were back then. Today, we’re seeing P/Es of 60, 75 and even 150. Many analysts counter that it’s the overall market that matters, and taken as a whole today’s stock market is trading around 16 times expected earnings. Be that as it may, investors put their money into individual companies, not the whole stock market.

Now, I’m no financial analyst. I’m just a journalist who has been a professional observer of tech for two decades. I see plenty of emerging technologies that may one day justify astronomical valuations.

But social media companies? No, I’m not buying that.

Not at these prices.