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Are technology companies overvalued?

Initial Public Offerings (IPOs) have recently become a popular way for technology start-ups to attract investment but are IPOs worth it for the investors?

Facebook led the way in 2012 when its IPO valued the company at $104bn (*£67bn). Yet its price dropped on the first day, from $38 (*£24) per share to $25 (*£16) More recently e-commerce giant Alibaba raised $25bn (*£16bn) through its IPO and there are some rumours that messaging tool Snapchat – which records no revenue – also plans to float. So are such IPOs worth it for the investors?

One company that was keen to avoid Facebook’s mistakes was Alibaba. The Chinese e-commerce company, which helps businesses access the large consumer and manufacturing base in China, and soon India, paints a positive financial picture. Its profits tripled to $2bn (*£1.3bn) in the second quarter of 2014 and, $90bn (*£58bn) the back of its positive numbers, launched an impressive public listing in September 2014 that raised $25bn (*£16bn). The entire company was valued at $230bn (*£147bn). Shares floated at $68 (*£44) and have managed to reach, providing healthy growth in value for investors.