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Are you itching to get your hands on some Facebook or Twitter shares?

Be careful. It's starting to feel a lot like 1999 again in the market for hot Internet initial public offerings. And we all remember how that ended.

Still, there are some good opportunities to make money in the big wave of Internet companies going public this year, as long as you watch the prices and buy selectively.

Some with the best potential include Kayak Software, an online travel company, Skype, which is still shaking up the telecom world, and Demand Media, a content company.

And what about the big four -- Facebook, LinkedIn, Groupon and Twitter? Hard to say, because their plans are sketchier and they haven't revealed financials.

What numbers do leak out suggest troubling valuations. Facebook, which despite the buzz seems more likely to go public in 2012, looks pricey if you believe the $50 billion valuation and an estimated $2 billion in sales often cited in the press. Given its rapid growth, that valuation could get more reasonable, though. Marketers will spend $4 billion on Facebook advertising this year, predicts eMarketer. But we'll have to wait for public filings to know anything for sure.

Before we take a closer look at the big upcoming Internet IPOs, let's consider why we are now in Internet Bubble 2.0.

1. IPO valuations are crazy again

I recently spoke with "Investing in IPOs" author and dot-com millionaire Tom Taulli about all the hot Chinese Internet IPOs now hitting the market. The conversation brought a troubling déjà vu -- because the charts and valuations of these companies seemed so much like the risky Internet IPOs folks were buzzing about in 1999.

Image: Michael Brush

Michael Brush

Take the Chinese online TV company Youku.com (YOKU, news) and E-Commerce China Dangdang (DANG, news), a Chinese online retailer. Youku.com rose 161%, and Dangdang jumped 87% their respective first days of trading in December.

Youku.com has a price-to-sales ratio of 75. That's a common measure of valuation; to show you how crazy a 75 ratio is, Yahoo (YHOO, news) trades for just 6.8 times sales. Dangdang goes for a price-to-earnings ratio of 219, compared with 50 for Amazon.com (AMZN, news).

2. Elitism is back

In the late 1990s, bankers took a lot of heat for handing out hot IPO shares to corporate executives and favored clients. This kind of cronyism always seems to get worse when markets overheat. So it wasn't encouraging to see Goldman Sachs Group (GS, news) recently create a special investment vehicle to try to get around U.S. securities law and give its elite investors early access to Facebook well before any IPO.

So it's quite possible investors who aren't those favored clients will face the same conditions they did during the tech boom (and most major IPOs since then, to be honest.) You'll have to buy at inflated prices in the hours and days after shares hit the market, or wait in hopes they dip as time goes by.

Which of course, is not what you're hoping for if you chase a hot IPO.

3. The magazine cover kiss-of-death returns

Back in December 1999, Time magazine marked the top of the Internet bubble by putting Amazon CEO Jeff Bezos on its cover as person of the year. The crash started in March 2000, and it would take 10 years for Amazon stock to recover. Investors cite this as an example of the "magazine cover indicator" -- where popular magazines often mark the top for stocks, with cover stories on bull markets.

Ominously, Time put Facebook founder Mark Zuckerberg on its cover as person of the year last month.

So be warned. "Whenever you have these IPO boomlets and the market gets hot, that's usually a risky time to buy," cautions James Angel, a professor of finance at Georgetown University's McDonough School of Business.

On the bright side, IPO experts like Angel and Lise Buyer of Class V Group, which helps companies navigate the IPO process, say it's positive that so many companies are going public now, given all the concerns that the number of U.S. listings is shrinking. "The IPO market is not broken, it's selective, and that is a good thing," says Buyer. (Read "How the stock market is killing jobs" for more on this.)

Now here's a closer look at some upcoming Internet IPOs to play -- or to avoid.

Kayak Software

Kayak scours the Internet for the best deals for travelers. It collects fees from airlines and hotel chains when travelers book trips. It also makes money from advertising.

Started by the co-founders of Expedia (EXPE, news), Travelocity and Orbitz Worldwide (OWW, news) in 2004, Kayak could have its IPO within the next few months. The recent strength of the shares of online travel companies Priceline.com (PCLN, news) and MakeMyTrip (MMYT, news) suggests there will be a lot of interest, says Nicholas Einhorn, a research analyst at Renaissance Capital, which specializes in IPO investing.

Certainly, growth rates are impressive. Kayak revenue was up 48% for the first three quarters of last year, to $128 million, as users made more than 469 million requests, an increase of 37% over the year before.

And there's plenty more room to grow, given that online travel is such a big business. Consumers in the U.S., Europe and Asia made $216 billion worth of online travel purchases in 2009. Travel is the largest category of e-commerce.

I'd avoid paying pay more than about 10 times sales for Kayak, a healthy premium, compared with 6.8 times sales for Google. To calculate Kayak's price-to-sales ratio, divide its market cap, once it begins trading, by annual sales of about $180 million. The big risk here is that Google might roll out a similar travel search service, says Georgetown's Angel.

Skype

Skype provides software that lets people use computers and smart phones to talk, video chat and text via the Internet. Instead of paying for a voice plan, Skype users need only a data plan.

Talking with other Skype users is free. The company makes money by charging for calls outside its network. Skype's big advantage over traditional phone companies is that it doesn't have to build and manage networks. Skype hopes to grow in part by getting more businesses to use its service. It brought in $406 million in revenue in the first half of last year.

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There's no word on the timing of the IPO just yet, but it's worth watching for. "This is definitely a high-profile IPO," says Einhorn. "It will get a lot of interest." Skype was purchased from eBay (EBAY, news) in November 2009 by private investors, who are now spinning it out.

Demand Media

As a writer, I have mixed feelings about Demand Media. On the one hand, it barely pays writers who produce its generic "how to" content. Then it games the search algorithms at Bing and Google to drive traffic to its own sites, like ehow and livestrong.com, generating ad revenue. Critics like Josh Brown, an investment adviser at Fusion Analytic, describe this as "industrial-strength spam."

On the other hand, given the traffic and sales growth numbers, consumers seem to like it. And who am I to argue with that? Demand Media says its own sites and affiliates got more than 1.6 billion page views in November. For the first three quarters of last year, revenue was up 25% to $179 million. The company is just turning profitable.

I'm also not convinced by critics who argue that Demand's accounting is dubious, because it spreads out the cost of articles over a number of years, which boosts near-term earnings. This makes sense. After all, unlike a news article about a local snowstorm, an article on how to shovel snow will retain its value to readers.

At a proposed offering price of around $16 a share, the company would have a market cap of $1.24 billion. It brings in about $240 million a year in sales. That works out to a price-to-sales ratio of 5, which doesn't seem too rich for such a fast-growing business.

Demand does face a big challenge. At some point, all the easy articles will be logged, and it will be more costly to create new content. Or growth will have to level off.

Is the IPO a sign we are there, with 2 million articles and videos added to Demand file cabinets last year alone? Probably not. But if you make money on this stock over the next year or so, then it might be time to cash out.

GameFly

GameFly looks a lot like Netflix (NFLX, news) because it rents popular video games through the mail. Given the big rise in Netflix shares, which have more than tripled in the past year to trade for $180 recently, you might look for a similar move in this stock.

But be careful with this comparison, cautions Scott Stevens of Strata Capital Management in Beverly Hills. Netflix shares have skyrocketed because of high hopes for success as it transitions to online distribution. But it's going to be a while before GameFly can make a similar transition, because streaming video games is much more complex, says Stevens. GameFly has been posting strong growth, so its stock may do well after an IPO. Just don't look for another Netflix.

Chinese Internet stocks

Given the vast potential growth for the Internet in China, it's no wonder investors love Chinese Internet stocks. There are already more than 400 million Internet users in China, and that number has a lot of room to grow, because only about a third of Chinese people use the Internet.

Throw in the twist that popular sites like Facebook and YouTube are blocked in China, and it's no surprise that investors can't wait to get their hands on companies that run similar websites there.

Oak Pacific Interactive, for example, owns China's largest social networking site Renren, which is a lot like Facebook, and Nuomi, which is like Groupon. It may come public in the first half of this year. Zynga and Sunity are two online game Web sites that are on the IPO docket.

Then there's Tudou.com, a Chinese YouTube. "In light of what happened with Youku.com, this stock is going to fly," says Taulli. (Youku.com went up over 160% in its first day of trading.) "If you can get Tudou.com at the offering, do it," he adds.

To get shares of hot IPOs early, however, you typically have to be a big customer at a brokerage that's helping the company go public. Otherwise, leave these Chinese Internet companies to the skilled traders because they are so volatile, suggests Taulli.

The big 4

That may turn out to be good advice for the big four U.S. Internet companies everyone wants a piece of. LinkedIn and Groupon will likely go public within the next several months, according to Reuters and the New York Times. Facebook and Twitter look like 2012 IPOs.

All these companies will have sky-high valuations, and their stocks are likely to be volatile. They face other challenges, too. IPO analysts like Taulli wonder what barriers protect Groupon from competitors, including the similar LivingSocial, backed by Amazon. It's not clear how Twitter makes money.

And what if the current social networking giants turn out to be fads? This may seem farfetched, but remember what happened to MySpace.

Already, there are signs of a backlash against social media. Last November, late night comic Jimmy Kimmel promoted "National Unfriend Day," encouraging people to pare fake Facebook friendships.

Books like "Alone Together," by Massachusetts Institute of Technology professor Sherry Turkle (who was recently on The Colbert Report) tell us that all the texting, tweeting and status updates crowd out true, real-world interaction.

Apologists say social media sites create more communication, not less. But even Pope Benedict XVI is not so sure. In a recent speech, he cautioned that online friendships are no substitute for the real thing.

Don't try to debate the pope on this by friending him on Facebook. He doesn't have an account.

At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.

Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.