Slashdot Mirror
Silicon Valley's Tech Bubble Is Now Larger Than In 2000. Will It Come To An End? (cnbc.com)
"We are now officially in a tech bubble larger than March of 2000," argues Keith Wright, instructor of accounting and information services at the Villanova School of Business. An anonymous reader quotes his commentary on CNBC:
In case you missed it, the peak in the tech unicorn bubble already has been reached. And it's going to be all downhill from here. Massive losses are coming in venture capital-funded start-ups that are, in some cases, as much as 50 percent overvalued... 76% of the companies that went public last year were unprofitable on a per-share basis in the year leading up to their initial offerings, according to data compiled by Jay Ritter, a professor at the University of Florida's Warrington College of Business, and recently featured in the New York Times. This is the largest number since the peak of the dot-com boom in 2000, when 81 percent of newly public companies were unprofitable...
Several financial models project that up to 80 percent of unicorn companies are set to fail within two years. Uber, the highest-valued private technology company, has rapidly growing revenue but remains highly unprofitable. With revenue of $6.5 billion in 2016, it still registered a net loss of $2.8 billion. The truth is, when a unicorn is overvalued, it doesn't take long for the market to discover this fact.
Several financial models project that up to 80 percent of unicorn companies are set to fail within two years. Uber, the highest-valued private technology company, has rapidly growing revenue but remains highly unprofitable. With revenue of $6.5 billion in 2016, it still registered a net loss of $2.8 billion. The truth is, when a unicorn is overvalued, it doesn't take long for the market to discover this fact.
Bottom line (sorry) - there is a metric shitload of capital out there waiting to make more capital. Since that's all that kind of person (or corporation, but I repeat myself) really worries about.
It's ALL about dealing with increasing growth. Which then becomes an exponential function.
Which, in the real world, typically don't end well.
Faster! Faster! Faster would be better!
Glad they learned from the first dotcom bubble and this time there are only bad things...
Probably a lot of the people involved in this bubble are too young to remember the last one.
This is the second longest the US has gone without a recession, per the roughly decade-long "business cycle" that's been recurring more or less since the end of the Civil War. Thus, something will probably happen within a year or two. The only real question is how big the downturn will be, and what sectors will be most affected.
Table-ized A.I.
will this popping bubble take down profitable tech companies with it?
"I don't know, therefore Aliens" Wafflebox1
. . . they'll get a government bailout like the auto and banking industries.
The government should have broken up GM when they bailed them out . . . making the smaller bits small enough to fail.
Maybe the government will break up Silicon Valley . . . sending bits and pieces of Silicon Valley to Arkansas, Alaska and Mississippi . . . ?
Schroedinger's Brexit: The UK is both in and out of the EU at the same time!
Profitability is so ... common.
We need more companies like Theranos, Uber, Tesla ... the profitable companies you probably haven't heard off.
I'm a minority race. Save your vitriol for white people.
Especially from cryptocurrency and ad-backed apps.
will this popping bubble take down profitable tech companies with it?
Profitable companies (meaning they show a profit on their income statements*) and are financially sound (meaning they have positive cash flows) will survive easily because they have a sustainable business model.
The companies that went bust in '00 where all based on hype and this ludicrous business model of getting "eyeballs" or an audience and then everything will work out. Magical thinking. It's not just web ventures either. There is a certain car company that is surviving right now on hype and the cult of personality around its CEO. Its board of directors is completely incompetent. None of them have any experience in the industry or even a similar industry. It's made up of the CEO's cronies and a relative of his. They even OKay'd a ludicrous compensation package that has royally pissed off its major stock and bond holders - they won't say it in public because if they do, CRASH!
I have a short list of public companies that will crash in that situation. No, I keep that for myself.
* - I see all too often people, including stock market analysts, cherry pick little bits of data that are positive for the company. However, they are not profitable and their cash flows are negative.
Think of the housing and car markets.
They're large items that cost a very large portion of most folks income in their lifetimes.
They should be VERY serious decisions, to the point where competition should be DEMANDED, along with deep efficiency in economy of these things.
But that's not how it happens.
Instead, there's monopolies everywhere, folks at every stage controlling what you are even allowed to see in terms of costs, barriers at borders to prevent cheap prices in one nation/city from being able to be observed or used by most folks.
Basically, they're allowed to function more as money siphoning institutions, taking small amounts from areas where folks can't ever hope to make much, and much larger amounts in other areas, and control what those folks are allowed to do observe to maintain those markets. Well, as far as you can call them markets.
Rando business people who think their business degree and appear on reality tv news networks mean nothing to me.
You can have an opinion when your degree isn't some bullshit capitalistic garbage. Talk to me when you have a STEM degree.
Deliberately inserting a hidden inverter (entropy) to foil Betteridge's Law.
I was (re-)watching the movie Wall-E yesterday and it offers such a clear window into the world that the DNC/Google/Facebook/SiliconValley are trying to impose. Incredible!
This time it's different.. At least that's what they always say. This go-round we don't have DogFood.com kinds of crap circulating but we do have too much VC money searching out ever more marginal "disruptors" in ever more narrow markets. What's more likely to happen than a generalized tech recession is the VC money will suddenly wise up and decide to sit out the plunge and catch the next cycle on the upswing.
Organization? You must be joking..
as much 50% overvalued? companies during the dotcom boom where hundreds of percent over valued, some 1000% percent plus and they were not the little startups either. Companies like Cisco lost near 90% of their market value. maybe total values are at the same level but the insane overvalue isn't quite their yet, though with some we are rapidly approaching it. It isn't the startups that should scare you it is when the so called bluechips are overvalued.
I don't disagree with a lot of what you say, but I am skeptical of the 'full employment' situation. I think there's a large population of highly qualified people working low paying 'underemployment' jobs.
I think this is why there is no large wage inflation in the bottom half of the labor market. Companies are still not competing for workers. There are tons of people still looking for a better/additional job.
I also think this is why all the help wanted adds I see still have an exhaustive list of qualifications for every job. Employers can still be picky.
My two cents.
It's like he's literally never read a newspaper.
Well put.
There is NOT a shitload of Capital, there is a shitload of Debt..
The markets (and governments) have been allowed to create unfettered inflation, and hide it by making sure the money flows to the top and is locked up before it directly effects consumer pricing (as strongly as it should). This is happening internationally.
The effect is to inflate away the value of the middle classes assets, making them look stupid if they dont invest in the boom-de-jour.
At the same time borrowing rates are being forced lower and lower, to get the same people to borrow to keep funding the game.
What happens at the end? when the productive middle classes have nothing left to suck out, and debt is everything?
THAT is the big question that is approaching. This is one of the reasons public and private forces are working hard to remove 'cash', as
it allows black market trading for the middle classes, and therefore as escape from total ownership.
Most likely the first round of results are higher and higher asset taxes, initially tied to capital gains, but soon moved to base asset ownership,
to squeeze out the last drops of ownership from the middle class, transforming the majority in to zero asset sustenance renters.
A larger and larger state/public class living above those, who gift themselves a better class of life 'because they are working to help', along with
more and more complex rules and punishments to keep the serfs in line and validate the existence of the state.
The real rich at the top are of course beyond that, and already have invested in high class boltholes all around the world. Most are not playing
this game for more money (they have enough), but because they are addicted to the game - its all just a competition with their peers. they know
they are above the state, so are not particularly concerned.
The first dotcom boom had something this one doesn't serving as a brake on growth...getting big fast (the model for all startups) came at a massive cost. Building out data centers, paying for Internet traffic, etc. This second dotcom boom has the cloud. As a result it's going to take a lot longer to deflate...or get even bigger before it pops which will cause more damage.
Back around 1999/2000, if a startup was a truly dumb idea, investors would be much less likely to fund their expansion and you'd see a natural thinning of the herd. This time, a startup only has to bring in enough money to pay the monthly cloud bill and can continue expanding for a longer time. They're starting to ship 50-pound bags of dog food for free like pets.com did, simply because they have more money on hand to burn. They're able to hire more workers and pay them exorbitant salaries to stay ahead in a "talent arms race." And, they're able to exist in a money-losing status for much longer because as long as they pay the cloud and the SaaS vendors, they're in business.
The 90s bubble was about eyeballs, and this one is about monetizing personal information generated by those little supercomputers everyone carries with them. There seems to be an infinite amount of room in the market for hundreds of copycat subscription-box services, "Tinder for X", "Uber for Y", you name it. Oh, and don't forget blockchain enabled, AI-powered dog treat box selection algorithms powered by your Facebook posts of your dog pictures.
Will it end? You betcha. Will it end quickly? I doubt it...there's a much lower barrier to entry and the capital markets seem unwilling to weed out the copycats.
The current level of tech investment depends on California's government. But you know how good these Democrats are at shitting the bed.
Yep. Exponential is the key.
Nothing grows exponentially save expectations.
At the end, all those economical "sciences" do is to handwave around this phyiscal impossibility, to give investors what they want to hear.
Silicon Valley is the figure head of a post scarcity economy where badge value constitutes the greater portion of all value.
Point in case: Facebook could go broke and collapse tomorrow and even the most die hard FB addicts would shrug it off and move to the next platform in something like 15 minutes or so.
In general it allready is the age of cyberpunk and post cyberpunk. The bubble is constantly busting. No news here.
My 2 eurocents.
We suffer more in our imagination than in reality. - Seneca
:-) Obviously a very important word is missing there...
“He’s not deformed, he’s just drunk!”
The article is talking about Unicorns.Google informs us that those are popular mythical horse-like creatures. Wikipedia offers "A unicorn is a privately held startup company valued at over $1 billion." It gives a few examples: "The largest unicorns included Uber, Xiaomi, Airbnb, Palantir, and Pinterest.[7] Dropbox"
We get the impression that 'tech' means 'companies headquartered in Silicon Valley". "Silicoh Valley" appears to be a nickname for Santa Clara Valley. "Until the 1960s it was the largest fruit production and packing region in the world with 39 canneries." Thus the solution would be to drink more Californian wines - especially of varieties without bubbles.
76% of the 2017 IPOs were unprofitable and this number is climbing dangerously close to the 81% of IPOs that were unprofitable in 2000. I was very lucky and dumped all of my dot com stocks by March of 2000. Only kept SAP and Oracle!
Quite a group of genetically superior commentators. Honestly! You make some brilliant points! The Jobs act really grew the bubble exponentially. After Groupon got embarrassed filing an S1 IPO 6 Times while we all laughed at them, the SEC decided to allow STEALTH IPOs where you donâ(TM)t need to tell anyone or show financials. Investor protections disappeared overnight. Now we have a SNAP where no shareholders even get to vote, just the founders. What a mess we have created. Donâ(TM)t fear, you will hear the bubble burst whether you are in your Prius or your Tesla!
When I wrote this article, I tried to stay neutral since my entire portfolio has been FANG for the past 7 years or so. My mandate was always FIRE - Become Financially Independent and Retire Early. Once I achieved that goal, I decided to focus on teaching and writing the actual facts and truth when and where I could find them. This is a novel concept now - The Truth!
1. There are fewer, smaller Unicorns being created
2. After the Jobs Act wiped out Investor protections, huge amounts of venture capital flew into Stealth IPOs.
3. At 76% unprofitable, the new IPOs in 2017 have almost reached the 81% unprofitable record of 2000
These 3 facts are alarming to me. Most research has the Unicorns sitting at 50% overvalued. Most billion dollar start ups missed their revenue targets for 2017 causing a rift between the start-up and their current results-driven investors who are no longer the original VCs - they already walked away with their profit. Just as in 2008, it will be the investor on Main Street who gets abused through 401K funds invested in alternative investments. Mutual funds have been dabbling outside of their traditional comfort zone the past few years. In the end the public market will clearly see the huge risk of devaluation and the mass market will dramatically disagree with the current valuations. With 0 investor protections left in place and Stealth IPOs happening every week we may actually generate a few more Unicorns and IPOs in 2018 but the game is almost over. Groupon was so embarrassed filing 6 S1s for their IPO, the SEC got rid of the requirement to show financials and increased the number of shareholders significantly (2000) before anything had to be shared publically. The populace will once again get stuck with the bill just as they did the greatest transfer of wealth in the history of the world when the banks offloaded their bad mortgages to the federal government. Oh yeah, that is still on the books. No banksters ever went to jail. Not even Wells Fargo. No wonder the US is owned by the Chinese. Oh well, Amazon will fix everything once it gets complete control!
That is a very scary number! The record of 81% of unprofitble IPOs was 2000. The last historic wealth destroying bubble. You donâ(TM)t have to hide in a corner now, but you can get defensive. Diversify into some safe large caps in stable industries. And move to at least 40% cash. You will look brilliant a year from now! Keith Wright