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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'?"
get it while the gettins' good, save the money - don't blow it, then get out
rinse and repeat, pt barnum was right
I live in the San Francisco bay area and the general vibe in this area is very reminiscent of how it was during the dot-com bubble of the late 90s. Lots of easy money is being thrown around, there's a housing shortage and rents are sky high, and my phone is ringing off the hook with requests for job interviews and I'm not even on job boards anymore.
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.
You can't handle the truth.
That is not the right question. Of course it is a bubble. The question is, "Where in the bubble are we?" Just starting, or about to pop?
Well, there is a kind of "social" craze going on, along with a "apps" craze (local and cloud-based), based on the belief that every "social" service or every app that is somewhat popular and runs ads (or has micro transactions) is destined to make profit. Much like in the Web 1.0 craze, there was the belief that every site that sells stuff will make money. Once again, meaningless numbers are thrown around (like "X million members!" never mind how many of them are active and how many of them are real) and ridiculous profit and value estimates are made. And the bubble feeds itself... I just hope that after the bubble bursts, we are not going to see people holding "will code apps/social websites for food" akin to "will code HTML for food" we saw when Web1.0 craze burst.
No.
Insane financial valuation theories mean we're in a bubble. Big money acquisitions can happen for a number of reasons. A lot of them are side effects of the insane theories. This one isn't.
They didn't pay $30 million for the App with no monetization potential, the second sentence of the first link is "Yahoo said it plans to close down the actual app and use the algorithmic summation technology". They paid $30 million for his algorithm and to hire the talented mind that conceived it. I don't know what's unique about his algorithm or it's results, but that's what the acquisition was about, not the app. Apparently it can do something Yahoo's wanted to do but was unable to accomplish. It may have been a bargain.
The first sentence of the summary contains a claim invalidated by the second sentence of the link. Seriously? Not even the submitter or the editor could RTFA?
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.
Posted from my Android phone. Oh, I can change this? There, that's better...
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...
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...
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Father works for Morgan Stanly and Mother is some lawyer. People don’t you really see? It is new world bribery and payouts? Yahoo could write “similar” app for much less, but they do not really need it. Kid got 300k from some investors in the past, then raised another million from Li Ka Shing (look him up) Yahoo or whoever needs to pay, can not pay directly to Li Ka Shing any money to avoid audits and conflict of interest charges and lawsuits, so what they do? Pays the kid 30 millions for some stupid app, 29.5 goes to Li Ka Shing (main investor) the rest goes to the kid. Now those investors got paid off. Kid is in the media selling light of hope for all the losers dreaming about another face book, and all the messes and government have no clue what just happened. As they say if something looks stupid and ridicules probably it is.
I saw the housing bubble. In 2006, specifically, when working as a programmer for a mortgage titling company. I just saw the numbers going into the database and realized that there's no possible way this could work in the long term - there were tons of refinanced loans for lower monthly payments that did nothing to pay back the principal, which more-or-less guaranteed that eventually the borrower couldn't pay.
I could see it, and I wasn't trained to see it or supposed to be looking for it. But it was there plain as day.
I am officially gone from
If I make $30,000,000 a year in wages, I pay 30%+ taxes on it. If I buy something for $30,000,000, I pay 0% in taxes (it's a purchase), if I sell something for a $30,000,000 profit and deduct nothing, I pay 15% taxes on it, and it's not hard to deduct $30,000,000 off a sale profit. If it's in a properly set up holding company, I pay 0% tax on it, even with no deductions. And yes, anyone moving $30,000,000 around does it through holding companies and trusts. Likely a $30,000,000 profit will generate $0 in tax.
People don't get how the truly rich work. They live by a completely different set of rules that even the rich wannabe can't comprehend.
Learn to love Alaska
What are ascribing to Keynes is exactly the opposite of what Keynes advocated.
The stock crash that heralded the coming of the The Great Depression was created by the policies you criticize -- policies lauded by the Republicans and Wall Street at the time, as a matter of fact.
Keynes observed that when there is significant underutilized productive capacity, there was risk of a deflationary spiral that further disrupts production. Government spending under these circumstances can have a strong positive effect for little dollar cost or risk to long term economic health. It did not take a genius to recognize that when people were starving and shoeless, shoe factories were laying people off, and farmland was left fallow about being repossessed by the bank, a little stimulus can create a lot of useful growth "out of nowhere", without violating any law of thermodynamics. All it took is a little common sense.
The question is whether we have significant underutilized productive capacity in the American economy today. I do not have a strong opinion on that point one way or another.
What I do believe is that a little inflation, by means of monetary hocus pocus or whatever, is probably a good thing when the economy is weak and we were recovery from an asset bubble in housing. That relieves pressure on the housing market, by bringing some homes out from being "underwater". While not glamorous that was probably the right policy to pursue over the last several years. Whether it is worth continuing those policies for much longer is less clear, because the fall off in construction has brought home prices and rental prices roughly in line with the long term historical norms.
I gather the way it works in Multinational Corporation Land is that the holding company with the cash is a "subsidiary" that is a PO Box in Ireland that buys a $100,000,000 asset from the USA-based parent company for $30,000,000. The USA-based company then buys the app for $30,000,000 from a third party, sells it to the subsidiary for $1 and claims a $69,999,999 loss to the IRS. The subsidiary then licenses the app back to the parent company for 110% of the revenue generated by the app in a package deal that includes transferring the $100,000,000 asset back to the USA-based company (companies can be tough negotiators with themselves). All the profits are booked in Ireland and the losses in the US and the headline is "USA-Based Company Buys $30,000,000 App." Then again, maybe I just don't understand all this complex business stuff, which is why senior executives make 400X my salary.
Actually, I wrote my thesis on life experience.