Warren Buffett: Don’t Believe the Pre-IPO Social Media Hype

Warren Buffett

Few billionaires have displayed the forward-thinking and sound ideology that Warren Buffett has demonstrated over the last 4 decades. He knows money, knows investments, and has an eye for companies’ successes and potentials. With so much hype being thrown at social media sites like Facebook, Twitter, and GroupOn ahead of possible IPOs, he warns investors that values may be inflated.

“Most of them will be overpriced,” Buffett said Friday in New Delhi. ”It’s extremely difficult to value social- networking-site companies. Some will be huge winners, which will make up for the rest.”

He did not, however, specify who will be the huge winners, much to the dismay of investors interested in getting into the social media game.

It brings to mind questions about bubbles, corrections, and flops. Who is going to be prove their value and bring gold to the table after the IPO? Google and other tech firms have demonstrated an ability to make early investors a ton of money, but social media is a different kind of tech. It’s unproven territory that is being hyped-up as huge. Will it live up to the hype?

As a general rule, any investments with emotion and momentum can be written off as poor. It’s not that they won’t meet expectations, but the hype-machine surrounding them often inflates values ahead of reality. We know social media is huge and growing, but are the revenue models solid and are the contingencies in place at them? We’ll likely find out within the next year as major social networks prepare to go public. At this point, there seems to be no rush. Nobody wants to be the first on the dance floor, at least amongst the major players. Private investments and second-tier share sales are dominating.

Buffett apparently will not be lining up to put his money in those pots. Will you?

About JD Rucker

+JD Rucker is Editor at Soshable, a Social Media Marketing Blog. He is a Christian, a husband, a father, and founder of Dealer Authority. He drinks a lot of coffee, usually in the form of a 5-shot espresso over ice. Find him on Twitter, Facebook, and Pinterest.

Comments

  1. The problem with investing in these companies is that their business models (especially GroupOn) can be easily duplicated. Add to the fact they don’t produce any tangible products just social interaction and you’re looking at some major risk. Will some win, of course it’d be ignorant to say all of them will fail. But for the majority of investors it’s going to be a swift kick in the pants.

  2. Only a fool would disagree with Buffet, but today I am a fool. I think Zuckerbergs Facebook shares will will much higher than the IPO valuation in 5 years time. He is up to bigger stuff than Google.

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