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I roll my eyes as these tortured attempts to draw parallels that aren't even superficially similar. 2000 was an IPO bubble of companies that had no revenue, no

by cletus 9y ago

I roll my eyes as these tortured attempts to draw parallels that aren't even superficially similar. 2000 was an IPO bubble of companies that had no revenue, no prospect of revenue and no business plan. Analysts went out of their way to justify valuations by inventing new metrics like revenue-to-price multipliers. What's different today is that the likes of Apple, Google, Microsoft, Facebook and Amazon are money-making machines on a scale probably not matched since at least the era of Standard Oil, the 19th century railroad tycoons and other industrialists like Carnegie. I mean, Apple is trading at a P/E of less than 19 and it has a market cap of $842B. That is mind-boggling but not at all outrageous. In 2000 the tech IPO bubble burst. In 2007 the subprime disaster came crashing down. It is absolutely certain there will be another downturn in the future but at this point I have no idea what the next trigger will be. My best guess is something to do with China. This could take many forms. Some think that the Chinese economy is a house of cards. There has clearly been a flight of capital from China. Who knows where this ends? Also, Chinese money in particular has been flooding into Western real estate markets. This too may come to a head. Or it could be something to do with North Korea or even Iran. Or populists movements may drive Western governments to crack down on what they see as excessive power by the large tech companies, particularly in the EU. Or a constitutional crisis instigated by our current lunatic-in-chief. Whatever the case I really don't see any significant parallels to 2000.

TAForObvReasons 9y ago
Anti-trust or a heavy wave of regulations, like what happened to Microsoft decades ago, is a significant risk. Given the proceedings of the Mueller investigation, it's certainly not out of the realm of possibilities for new laws governing internet advertising.
- tschwimmer 9y ago
  I don't think it's likely. After crakacing down on Arthur Andersen caused 100,000 people to lose their jobs some people think the Justice Department and Congress are intentionally not going after corporate malfeasance, or at least not as strongly.[1] [1]: http://www.npr.org/2017/07/11/536642560/is-the-justice-department-shying-away-from-to-prosecuting-corporations http://www.npr.org/2017/07/11/536642560/is-the-justice-depar...
  - tomkat0789 9y ago
    That's an eye-opening article you linked there. Thanks for posting.
adventured 9y ago
> 2000 was an IPO bubble of companies that had no revenue, no prospect of revenue and no business plan. That's half myth. Most of the Nasdaq's value inflation was from companies with substantial revenue, not a thousand DrKoop.com or Pets.com companies. Just the overvaluation by Microsoft, Cisco, Oracle, Sun, Nortel, Lucent, Intel, AOL, Yahoo ($1.5 to $2 trillion in overvaluation) - was more than what all the dotcom IPO companies were worth combined. Most of the largest tech market cap companies of 2000 had real revenue. Microsoft was sporting a ~50-65 PE ratio in 1999/2000. AOL was commonly trading for 150 to 200 times earnings, with $8 billion in annualized revenue and over a billion in annualized profit, growing at 100% year over year circa mid 2000. Cisco was solidly profitable, had $16-$20 billion in annualized revenue and was growing extremely fast. It produced the single largest market cap in history up to that point. Oracle was commonly trading at 100 times earnings. Just the Cisco overvaluation alone, at $450 billion give or take, was worth more than most of the zero revenue style dotcom companies combined (companies like Geocities, TheGlobe, etc). There is once again trillions of dollars in overvaluation among today's largest tech companies. You can easily see that when you look at how they've inflated based on the market moving rather than earnings the last three or four years. For example, Microsoft's valuation tripled over five years on the back of between zero and very little earnings growth. Appraise Amazon's valuation based on income. Good luck. Netflix? 150-200 PE ratio has been typical. Activision is worth $50 billion, trading at 45-50 times earnings, with typical 7%-10% style income growth. Cisco's valuation has nearly doubled in five years, despite very little income or business growth. Alibaba is trading for 50-60 times earnings. Salesforce.com is trading for... oh geez, 400 times last fiscal year's earnings, and a lot more than that based on the last four quarters. Oracle's stock is up by about 1/3 in the last year, while its business can't get beyond where it was in 2015. VMWare has a ~43 PE ratio, and is lucky if they can generate 10% growth at this point. Intel has doubled in five years, with minimum income growth. nVidia is trading for 60 times earnings. Sales might grow 15%-20% in the coming year, which caps what their earnings growth is likely to do as well. Tesla's valuation? Ha. Twitter & Snapchat, ~$35 billion in combined market value, neither have ever earned a profit. Workday has never earned a profit. $22 billion valuation. In fact their losses just keep growing by the year, over 25% of revenue equivalent for their last fiscal year at $400 million in negative net income. Revenue nearly doubled, losses nearly doubled, versus 2015. This is a company that loses between 1/2 and 2/3 of its market cap in the next downturn as they're forced to slash the bleed out of desperation and the juiced growth implodes with it. AMD, the poster child for showing up during market bubbles, has an $11 billion market cap and hasn't earned a profit in ... who remembers when. Their stock went up 6-7 fold on hype, while they can't even get sales back to 2014 levels. Splunk, $9 billion market cap. This is a company that bleeds red ink by the barrel ($800+ million in losses the last three years, on $2 billion in sales). Oh but they're growing fast so it's ok? It won't be ok when the music stops and they have to cap the red ink, then the growth that's artificially juiced by that goes with it. Broadcom, 50 times forward earnings, lucky if their growth hits 15% in the next year. Texas Instruments. Zero growth for years. The stock is up roughly 40% in the last year. Pure multiple expansion. Priceline.com, 40-45 PE ratio, lucky if they can hit 10% style growth in a given year since 2013. Stock is up 50% since 2014, while earnings are still below that level. This list only keeps going. Is it as bad as 2000? No, it's merely extremely bad today, not yet dotcom bubble days bad.
InclinedPlane 9y ago
Right. There absolutely is a bubble in tech right now, but it's a much much smaller part of the total tech industry than it was in 2000. Legitimate valuation of tech is now in the trillions, and well earned. Tech will never crash to the degree that it did in 2000. A lot of people might end up without jobs, but it's not going to cause a huge recession the way the dot com bust did.
nabla9 9y ago
> are money-making machines And they are valued as money making machines. Amazon's profit margin is now just 0.59%. When economy hits downturn, it will hit Amazons profits and valuation. It took eight years for Amazon to return back to its 2000 valuations after crash.
- nl 9y ago
  Amazon can turn up and down their profit whenever they like. They have proven it and the market knows it.
  - nabla9 9y ago
    Market knows it = it's already in the price. Market bubbles are not caused by success or failure of the companies themselves. They are caused by overpricing the the companies. No matter how good the company is, it can be always overvalueud.
thisisit 9y ago
For what it's worth, in financial circles it is also known as "this time it's different". Now I don't have detailed statistics with me to do a comparison. But, when you have stocks like SNAP with no revenue getting away with selling non-voting raises 3.5 billion at 20 billion market cap, there is something wrong. It's not the strongest names which need to drag down the market, it's the weakest ones. Then you have Softbank raising tons of money to invest in tech: https://www.recode.net/2017/10/19/16506218/softbank-new-investment-vision-fund-masayoshi-son https://www.recode.net/2017/10/19/16506218/softbank-new-inve... Though I agree this time the bubble might not be the tech IPO rather the cheap capital around the world. That doesn't mean tech stocks will be insulated. Tech stocks might see a large hit, something comparable to the 2000 bust days.
- nl 9y ago
  You realise that anti-SNAP thing was literally the same argument people used on FB when they floated, right?
  - thisisit 9y ago
    Facebook had two classes - A with 1 vote and B with 10 votes. In IPO they offered class A. Snap has A, B and C. They offered A which has zero voting rights. Facebook tried to get another structure in place this year but dropped it. So, not literally the same argument.
    - nl 9y ago
      True, but the financial side is pretty much the same. Additionally, the preferred holdings in Facebook's case make the difference between the 1 vote class A and a hypothetical zero vote class somewhat moot (at the moment anyway).
- tim333 9y ago
  I'm not sure "this time it's different" really applies to the stock market at the moment. The valuations seem a bit steep but not that out of line with history given the low interest rates. There have always been companies like Snap where it's unclear if they'll make it or not. Now cryptocurrencies do seem to fit the "this time it's different" model.
ngsayjoe 9y ago
Current Bitcoin / ICO / cryptocurrencies draw more similarity to 2000 Dot Com Mania than current tech bluechips with solid earnings. >> What's different today is that the likes of Apple, Google, Microsoft, Facebook and Amazon are money-making machines on a scale probably not matched since at least the era of Standard Oil, the 19th century railroad tycoons and other industrialists like Carnegie. During Standard Oil times there were country-barrier, but nowadays tech monopolies can almost make money tax free from those foreign countries they may not even have an office in.
- wils1245 9y ago
  My question is, when the crypto market corrects, will it spark a broader tech pullback? The big four will be fine, but lots of unprofitable tech companies will be vulnerable.
  - ngsayjoe 9y ago
    Yeah, just like the last Dot com bubble when it bursted some traditional companies didn't follow, e.g those components of Berkshire Hathaway. My guess is AAPL, AMZN, INTC, GOOG, MSFT should all be pretty safe. Can't be said for Snap, FB, NFLX, TSLA, NVDA. I would love to see TSLA succeed though but it has lots of debts.
    - lostmsu 9y ago
      Why NVDA is not safe? They are pure hardware, that the former 4 need all the time.
      - graedus 9y ago
        I'm guessing the argument is that some significant portion of the demand for NVDA parts is due to crypto mining (I don't know how significant). If you imagine that demand dying down then NVDA doesn't look as good I suppose. Their products are still good though and there was plenty of demand for them before crypto mining and speculation became a factor.
      - 9y ago
deleted 9y ago
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jacksmith21006 9y ago
Apple FY 2017 results were worse than FY 2015. Yet share price appreciated. Just sayin. The others yes they are growing.

by cletus 9y ago

TAForObvReasons 9y ago

Anti-trust or a heavy wave of regulations, like what happened to Microsoft decades ago, is a significant risk. Given the proceedings of the Mueller investigation, it's certainly not out of the realm of possibilities for new laws governing internet advertising.

tschwimmer 9y ago
I don't think it's likely. After crakacing down on Arthur Andersen caused 100,000 people to lose their jobs some people think the Justice Department and Congress are intentionally not going after corporate malfeasance, or at least not as strongly.[1] [1]: http://www.npr.org/2017/07/11/536642560/is-the-justice-department-shying-away-from-to-prosecuting-corporations http://www.npr.org/2017/07/11/536642560/is-the-justice-depar...
- tomkat0789 9y ago
  That's an eye-opening article you linked there. Thanks for posting.

adventured 9y ago

> 2000 was an IPO bubble of companies that had no revenue, no prospect of revenue and no business plan. That's half myth. Most of the Nasdaq's value inflation was from companies with substantial revenue, not a thousand DrKoop.com or Pets.com companies. Just the overvaluation by Microsoft, Cisco, Oracle, Sun, Nortel, Lucent, Intel, AOL, Yahoo ($1.5 to $2 trillion in overvaluation) - was more than what all the dotcom IPO companies were worth combined. Most of the largest tech market cap companies of 2000 had real revenue. Microsoft was sporting a ~50-65 PE ratio in 1999/2000. AOL was commonly trading for 150 to 200 times earnings, with $8 billion in annualized revenue and over a billion in annualized profit, growing at 100% year over year circa mid 2000. Cisco was solidly profitable, had $16-$20 billion in annualized revenue and was growing extremely fast. It produced the single largest market cap in history up to that point. Oracle was commonly trading at 100 times earnings. Just the Cisco overvaluation alone, at $450 billion give or take, was worth more than most of the zero revenue style dotcom companies combined (companies like Geocities, TheGlobe, etc). There is once again trillions of dollars in overvaluation among today's largest tech companies. You can easily see that when you look at how they've inflated based on the market moving rather than earnings the last three or four years. For example, Microsoft's valuation tripled over five years on the back of between zero and very little earnings growth. Appraise Amazon's valuation based on income. Good luck. Netflix? 150-200 PE ratio has been typical. Activision is worth $50 billion, trading at 45-50 times earnings, with typical 7%-10% style income growth. Cisco's valuation has nearly doubled in five years, despite very little income or business growth. Alibaba is trading for 50-60 times earnings. Salesforce.com is trading for... oh geez, 400 times last fiscal year's earnings, and a lot more than that based on the last four quarters. Oracle's stock is up by about 1/3 in the last year, while its business can't get beyond where it was in 2015. VMWare has a ~43 PE ratio, and is lucky if they can generate 10% growth at this point. Intel has doubled in five years, with minimum income growth. nVidia is trading for 60 times earnings. Sales might grow 15%-20% in the coming year, which caps what their earnings growth is likely to do as well. Tesla's valuation? Ha. Twitter & Snapchat, ~$35 billion in combined market value, neither have ever earned a profit. Workday has never earned a profit. $22 billion valuation. In fact their losses just keep growing by the year, over 25% of revenue equivalent for their last fiscal year at $400 million in negative net income. Revenue nearly doubled, losses nearly doubled, versus 2015. This is a company that loses between 1/2 and 2/3 of its market cap in the next downturn as they're forced to slash the bleed out of desperation and the juiced growth implodes with it. AMD, the poster child for showing up during market bubbles, has an $11 billion market cap and hasn't earned a profit in ... who remembers when. Their stock went up 6-7 fold on hype, while they can't even get sales back to 2014 levels. Splunk, $9 billion market cap. This is a company that bleeds red ink by the barrel ($800+ million in losses the last three years, on $2 billion in sales). Oh but they're growing fast so it's ok? It won't be ok when the music stops and they have to cap the red ink, then the growth that's artificially juiced by that goes with it. Broadcom, 50 times forward earnings, lucky if their growth hits 15% in the next year. Texas Instruments. Zero growth for years. The stock is up roughly 40% in the last year. Pure multiple expansion. Priceline.com, 40-45 PE ratio, lucky if they can hit 10% style growth in a given year since 2013. Stock is up 50% since 2014, while earnings are still below that level. This list only keeps going. Is it as bad as 2000? No, it's merely extremely bad today, not yet dotcom bubble days bad.

InclinedPlane 9y ago

Right. There absolutely is a bubble in tech right now, but it's a much much smaller part of the total tech industry than it was in 2000. Legitimate valuation of tech is now in the trillions, and well earned. Tech will never crash to the degree that it did in 2000. A lot of people might end up without jobs, but it's not going to cause a huge recession the way the dot com bust did.

nabla9 9y ago

> are money-making machines And they are valued as money making machines. Amazon's profit margin is now just 0.59%. When economy hits downturn, it will hit Amazons profits and valuation. It took eight years for Amazon to return back to its 2000 valuations after crash.

nl 9y ago
Amazon can turn up and down their profit whenever they like. They have proven it and the market knows it.
- nabla9 9y ago
  Market knows it = it's already in the price. Market bubbles are not caused by success or failure of the companies themselves. They are caused by overpricing the the companies. No matter how good the company is, it can be always overvalueud.

thisisit 9y ago

For what it's worth, in financial circles it is also known as "this time it's different". Now I don't have detailed statistics with me to do a comparison. But, when you have stocks like SNAP with no revenue getting away with selling non-voting raises 3.5 billion at 20 billion market cap, there is something wrong. It's not the strongest names which need to drag down the market, it's the weakest ones. Then you have Softbank raising tons of money to invest in tech: https://www.recode.net/2017/10/19/16506218/softbank-new-investment-vision-fund-masayoshi-son https://www.recode.net/2017/10/19/16506218/softbank-new-inve... Though I agree this time the bubble might not be the tech IPO rather the cheap capital around the world. That doesn't mean tech stocks will be insulated. Tech stocks might see a large hit, something comparable to the 2000 bust days.

nl 9y ago
You realise that anti-SNAP thing was literally the same argument people used on FB when they floated, right?
- thisisit 9y ago
  Facebook had two classes - A with 1 vote and B with 10 votes. In IPO they offered class A. Snap has A, B and C. They offered A which has zero voting rights. Facebook tried to get another structure in place this year but dropped it. So, not literally the same argument.
  - nl 9y ago
    True, but the financial side is pretty much the same. Additionally, the preferred holdings in Facebook's case make the difference between the 1 vote class A and a hypothetical zero vote class somewhat moot (at the moment anyway).
tim333 9y ago
I'm not sure "this time it's different" really applies to the stock market at the moment. The valuations seem a bit steep but not that out of line with history given the low interest rates. There have always been companies like Snap where it's unclear if they'll make it or not. Now cryptocurrencies do seem to fit the "this time it's different" model.

ngsayjoe 9y ago

Current Bitcoin / ICO / cryptocurrencies draw more similarity to 2000 Dot Com Mania than current tech bluechips with solid earnings. >> What's different today is that the likes of Apple, Google, Microsoft, Facebook and Amazon are money-making machines on a scale probably not matched since at least the era of Standard Oil, the 19th century railroad tycoons and other industrialists like Carnegie. During Standard Oil times there were country-barrier, but nowadays tech monopolies can almost make money tax free from those foreign countries they may not even have an office in.

wils1245 9y ago
My question is, when the crypto market corrects, will it spark a broader tech pullback? The big four will be fine, but lots of unprofitable tech companies will be vulnerable.
- ngsayjoe 9y ago
  Yeah, just like the last Dot com bubble when it bursted some traditional companies didn't follow, e.g those components of Berkshire Hathaway. My guess is AAPL, AMZN, INTC, GOOG, MSFT should all be pretty safe. Can't be said for Snap, FB, NFLX, TSLA, NVDA. I would love to see TSLA succeed though but it has lots of debts.
  - lostmsu 9y ago
    Why NVDA is not safe? They are pure hardware, that the former 4 need all the time.
    - graedus 9y ago
      I'm guessing the argument is that some significant portion of the demand for NVDA parts is due to crypto mining (I don't know how significant). If you imagine that demand dying down then NVDA doesn't look as good I suppose. Their products are still good though and there was plenty of demand for them before crypto mining and speculation became a factor.
    - 9y ago

deleted 9y ago

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jacksmith21006 9y ago

Apple FY 2017 results were worse than FY 2015. Yet share price appreciated. Just sayin. The others yes they are growing.