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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!
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.
. . . 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.
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.
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.