Social networking may be in a bubble: Barron's

NEW YORK, USA: The social-network industry is growing quickly but the stock values of many publicly traded companies in the sector may be increasing faster and face being overvalued, financial magazine Barron's wrote.

The prices of eight companies in the sector that are or plan to become public reflect a bubble or a bubble-to-be, Barron's said in its July 25 edition. The more investors seek the stocks, the higher the values are likely to go, it said.

The companies -- Facebook, Groupon, Zynga, LivingSocial, Twitter, LinkedIn Corp, Pandora Media Inc and Zillow Inc -- are estimated to be worth a total of $200 billion. In 2010 they generated $3.5 billion in revenue, Barron's said.

Google Inc, on the other hand, has a market capitalization of nearly $200 billion but generated $29 billion in revenue last year and earned more than $8 billion, Barron's said.

Google has never traded at more than 29 times sales and it neared 100 times earnings only once, Barron's said. Its median price-to-sales ratio as a public company is 11, with the current ratio being 7.0, Barron's said.

Based on that, the eight social-networking companies are between 20 and 100 percent overvalued, according to Barron's.