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Henderson’s technology director warns of social media bubble

Henderson director of technology Stuart O’Gorman has warned of a social networking bubble which is likely to grow following the Facebook initial public offering next month.

O’Gorman, who runs the £396m Henderson global technology fund, says the social networking sector is subject to a lot of consumer hype.

But he does not believe there is a bubble in the wider technology sector and he considers the Apple share price could rise further.

However, he says: “There is a part of the technology sector that is overheating. There is a lot of hype over social media and there are a lot of retail investors that do not care about valuations and are buying ridiculous companies like Zynga and Groupon without really understanding what they are buying. This can drive valuations up. “Facebook has not set the price of the IPO yet, so we cannot say whether it will be expensive or not because we do not know what its market cap is. However, I expect a lot of retail investors will pile in and pay whatever price they can and it will probably go to a crazy valuation quickly.”

Investment Quorum chief investment officer Pete Lowman says: “I agree with O’Gorman that there is a hint of a bubble in social networking. Companies in this area have to prove they are real companies in terms of revenue streams, earnings and product to be an genuine investment opportunity.”

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