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Silicon Valley's Tech Bubble Is Now Larger Than In 2000. Will It Come To An End? (cnbc.com)

Posted by ryuzaki0 on from the toil-and-trouble dept.

"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.

5 of 144 comments (clear)

  1. Silicon Valley is too big to fail . . . by PolygamousRanchKid+ · · Score: 4, Interesting

    . . . 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!
    1. Re:Silicon Valley is too big to fail . . . by Anonymous Coward · · Score: 0, Interesting

      You mean those shove ready jobs and 8 TRILLION more in debt more than all the previous presidents? Or did the spyocrats tell you a different story and blame the republicans for what they did?

      I realized today why CNN sucks so hard lately (go on you can admit it). It is because Trump fired all the people who were working for CNN and the government. They no longer have their 'sources' because they were all fired. So now all they do is speculate what is going on.

  2. Re:Bubble or not, we are DUE for a correction by kentrel · · Score: 4, Interesting

    What are you talking about? The US has been in a depression for 10 years with less than 3% GDP growth. Forbes called 2009-2013 the "worst five years since the Great Depression". If anything America is due for a boom.

  3. startups always had a high failure rate. by gravewax · · Score: 3, Interesting

    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.

  4. Yes, but it'll take longer by ErichTheRed · · Score: 3, Interesting

    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.