Do Big-Money Acquisitions Mean We're In a Tech Bubble?

Nerval's Lobster writes "When a major IT company pays a reported $30 million—roughly 90 percent of it in cash—for an iOS app with no monetization strategy and a million downloads since launch, is that a sign that the tech industry as a whole is riding a massive, overinflated bubble? Yahoo isn't alone, by a long shot: over the past couple years, a few apps have been snatched up for enormous sums—think Facebook's $1 billion acquisition of Instagram in 2012, or Google buying Sparrow for a reported $25 million. Nor has the money train stopped there: in a pattern that recalls the late-90s market frothiness for anyone over the age of 28, a handful of tech companies have either launched much-hyped IPOs or witnessed their share price skyrocket into the stratosphere. But does all this IPO activity and app-acquiring actually mean 'bubble'?"

Comments

yay for bubbles

[iggymanz]

get it while the gettins' good, save the money - don't blow it, then get out

rinse and repeat, pt barnum was right

Re:yay for bubbles

[lightknight]

Indeed. Looking at the college loan bubble...as well as the new real estate / mortgage bubble...I am without words. We just went through this not even a decade ago, so...why are we doing this again?

As for the 'tech' bubble...these are purely fluff acquisitions...good money paid for crap...that makes the original DOTCOM bubble look rock solid in comparison. I don't have the figures in front of me, but I've read some of this stuff recently...we're looking at paying premiums for companies in excess of their earnings for the next 50 years...many of them aren't even paying a dividend, so the only money that can be made is by selling it off to someone else who thinks it will go higher...or possibly someone who needs to claim a fictitious loss through some mystic means. Like Instagram, a number of these companies don't even seem to have anything resembling new technology.

From what I've seen, the heart wood of the tech sector has given out, and it appears to be shrinking. We're seeing a compacting of the tech sector, not new energy.

An easier way to chart things is to ask the tech sector "have your wages risen greatly, on average, in the past three years, allowing for inflation?" Find out which sector is seeing a rise in wages, either regional or global, and you'll know which one is currently enjoying a boom. Last I checked, which was a while ago, the Australian mining companies were doing pretty well here.

Yes, it's inflation driven

[roman_mir]

Yes, it is a bubble, but it's not simply a tech bubble, it's money bubble this time. It's all inflation, people are looking for place to park value.

For all the Keynesians that deny one of the 3 major functions of money (storage of value), that's what you do when you print and print without regard to the actual purchasing power - you force people to look into alternative ways of storing purchasing power, and obviously with the interest rates being pushed down by this same action by the Fed and other central banks around the world, there is no yield.

Savers, investors are in a search of yield and they can't find it. That's how bubbles form. While the Fed is trying hard to reflate the housing bubble it doesn't really control what the inflation goes into and when it comes rushing out, so it results in higher stock market prices, higher asset prices that go up in bidding wars, whatever people can think of, anything that is not the paper printed by the central banks.

It will burst, what will be the second worst of the bad is unclear right now but the worst of the bad will be USD denominated debt, bonds, dollars themselves.

Re:Yes, it's inflation driven

[frank_adrian314159]

Keynesian's would run surpluses during good times.

Yes, which is what Keynesian economics advocates. Also, these surpluses should be used to pay down debt that was accumulated during the last economic downturn or accumulated to make a rainy-day fund to shore up the economy during the next economic downturn or (and conservatives will be shocked by this) taxes be reduced so that there is no longer a surplus.

However, parent also seems to confuse what is recommended by Keynesian economists (who broadly believe these recommendations) and the actions of the politicians, who often ignore actual economists (of any stripe), which seems to be some odd tactic to discredit Keynesians simply because (just like most normal people) politicians don't listen to them.

Re:Bubble

[Rob Y.]

We've been in a bubble economy-wide since the crash of 2007. It's (more or less) intentional, fueled by artificially low interest rates and the Fed pouring money into the banking system. That money has no place to go, so it goes into whatever's trendy at the moment - whether there's real value there or not.

Everyone (again - more or less) agrees that the economy needed the stimulus, but a better approach would have been to pump the money into the economy via smartly targeted (or even non so smartly targeted) direct government spending. Funded, if possible, by new revenue streams themselves defined to have little effect on employment and other economic activity. But we don't have either a functioning market economy or a functioning democracy capable of managing the economy through the political system. So we go from bubble to bubble - or crash to crash, depending on how you view it.

Re:Acquisitions over Taxes

[dehole]

It is in their best interest to take advantage of any loophole, just as normal people would go to a tax accountant to get the most money for our tax return. To do otherwise is silly. Do you really pay more taxes than you should?

If there are loopholes in tax laws, then our representatives should fix those. But our representatives don't represent us, they represent the corporations which spend money lobbying. Perhaps the Onion piece about America hiring a lobbyist is what we should do to get some representation...

Re:Bubble

[bluefoxlucid]

Keynesians criticizing other Keynesians for being Keynesians. If you all backed off and shut it and let the damn thing crash, we could get back to having a stable market after we pick the pieces up. Keep hoisting that piano higher while the rope continues to fray...