Page 364 - Using MIS

332 Chapter 8 Social Media Information Systems

CollaBora tion exerCiSe 8

Using the collaboration IS you built in Chapter 2 (page 74), Tech Companies Market Cap ($) P/E
collaborate with a group of students to answer the following
questions. Apple 541.51B 15.07
Twitter’s IPO on November 7, 2013, was one of the biggest Google 380.64B 29.57
tech IPOs in history. The social media giant’s stock closed that
day at $44.90 a share, making the company worth an estimated Facebook 161.89B 81.82
48
$25B. Not bad for a company that had never made a profit. Amazon.com 142.12B 481.81
In fact, Twitter posted a $70M loss the quarter before listing!
How could a company be worth $25B and never have made Netflix 25.30B 158.61
any money? LinkedIn 18.93B N/A
Analysts argue that tech companies, like those shown in Twitter 18.54B N/A
Figure 8-14, should be valued based on growth potential, user
base, consumer engagement, and market size. It turns out
that Amazon.com, Instagram, and Pinterest weren’t profitable
when they went public, either. Traditional Companies Market Cap ($) P/E
Traditional IPO valuations focus on measures of profit- General Electric 269.04B 22.06
ability. This means investors look at revenues, profits, assets,
liabilities, and new products. Figure 8-14 shows price-to-earn- Wal-Mart Stores 248.17B 15.85
ings ratios (P/E) for several well-known traditional and tech Verizon Comm. 207.26B 11.18
companies. Toyota 180.60B 10.08
Using iteration and feedback, answer the following
questions: BP 155.63B 15.73

8-6. Compare the tech companies’ P/E ratios to the tradi- Johnson & Johnson 289.05B 19.54
tional companies’ P/E ratios. Note that some of the Ford 65.01B 10.23
tech companies have very high P/E ratios. (A low P/E
is good; a high P/E is bad.) Some, like Twitter, don’t Figure 8-14
even have a P/E ratio because they haven’t turned a Tech Company Valuations
profit. As a group, list the reasons why the tech com-
panies have such high P/E ratios. Are the prices of
these companies’ stocks justified given the earnings? 8-8. Create a free online portfolio of these stocks (i.e., via
Why? Yahoo! Finance) and track its progress. Report on its
performance.
8-7. Identify public tech stocks you believe are underval-
ued (not limited to this list). Design an investment 8-9. Could overvalued tech stocks lead to a dot-com 2.0
portfolio consisting solely of tech stocks that you be- crash like the original dot-com crash in 1999–2001?
lieve will be profitable. Justify your decision with re- Discuss why this may or may not happen. Summarize
gard to risk and return on those stocks. your discussion in a couple paragraphs.

CaSe Study 8

Sedona Social

Sedona, Arizona, is a city of 10,000 people surrounded by Tucson but 2,000 feet below the altitude of Flagstaff. This
Coconino National Forest. At an elevation of 4,500 feet, Sedona middle elevation provides a moderate climate that is neither
is considerably higher than the valley cities of Phoenix and too hot in the summer nor too cold in the winter. Sedona

48 Olivia Oran and Gerry Shih, “Twitter Shares Soar in Frenzied NYSE Debut,” Reuters, November 7, 2013, accessed May 28, 2014, www.reuters.com/
article/2013/11/07/us-twitter-ipo-idUSBRE99N1AE20131107.