"OK. Here’s a new one: Mass text messaging company Twitter is currently claiming a valuation of $8-$10 billion. Sure, the white hot Web 2.0 company has barely made any money (~45 million in 2010) and may become another Friendster. But there’s tons of cash sloshing around Silicon Valley and the herd is starting to feel the first pangs of fear they will miss out on investing in “the next big thing.”
That means fundamental business valuations are on the way out the door. In the place of sane rational analysis, you should expect to see hype, emotions, and ego. That’s a simple way of saying investors are more willing to slap an extra hundred or two hundred basis points onto M&A multiples.
Here are the first few snowballs in what’s starting to look like an inevitable deal avalanche:
Groupon: The mass coupon site sent shockwaves through the business world after rejecting a $6 billion offer from Google (NASDAQ:GOOG). The company clearly thinks it’s worth more and there’s still a window of opportunity to wait for a more insane valuation. Now that’s a clear sign there ain’t no economic depression.
Demand Media DMD: The world’s largest industrial content farming operation popped over 30% at their IPO ~2 weeks ago."