13 ms·

In 1999 there was an email going round about how ridiculous dotcom valuations were. Taking Amazon, I think, as an example it said it would have to earn more tha

In 1999 there was an email going round about how ridiculous dotcom valuations were. Taking Amazon, I think, as an example it said it would have to earn more than Kodak, Boeing, Caterpillar etc to ever be worth it's valuation. There was a general sense of "it's just a bookstore". Now I know everything is more mature and the situation is different, but I also remember feeling very confident that Amazon was waaay overvalued.

zwkrt 8y ago
Pets.com was also overvalued, right? It's easy to see the winners in hindsight.
- wuliwong 8y ago
  It went out of business in 2000 so I guess any valuation over zero turned out to be too high?
- coldcode 8y ago
  Pets went out of business trying to ship heavy dog food for free. But today the logistics for that actually exists. Often it doesn't pay to be too early. If you are too early you need more cash to stick around until you are proven right. Webvan was another example, today food shipping businesses are everywhere (whether they make money or not one can argue) but back then they were too early and tried too hard before the logistics worked.
  - JohnFen 8y ago
    > Often it doesn't pay to be too early As the old adage goes -- the pioneers get all the arrows.
    - Atheros 8y ago
      The second mouse gets the cheese.
- mrnobody_67 8y ago
  Chewsie sold for $3.35 billion recently...
ironcan 8y ago
On the flip side, if it wasn't Amazon mentioned but pets.com, they were entirely right.
- bryanlarsen 8y ago
  I guess the right question is, was a basket containing Amazon.com, pets.com and all the rest overvalued? Amazon is up about 15X since its peak before the crash, the dow is at 3X over the same period. So as long as AMZN was >= 20% of your basket, then it was fairly valued. Sounds about right.
  - bilbo0s 8y ago
    >So as long as AMZN was >= 20% of your basket... and there's the rub, knowing, a priori, what the proper balance should be.
    - deleted 8y ago
      [deleted]
  - Cthulhu_ 8y ago
    Amazon also aggressively and effectively expanded from being "just" a bookstore to a cheap store that sells everything, and diversified even further by effectively creating the multi-billion dollar cloud computing market, which in turn created the hyperscaling startup boom. Amazon deserves that valuation for that (not so much for its extorsion of its employees though; you'd expect one of the highest valued companies of the world to pay its employees accordingly)
  - JumpCrisscross 8y ago
    > was a basket containing Amazon.com, pets.com and all the rest overvalued? Yes. This has been extensively studied. Almost every investor who deployed new capital in the late 90s lost money on those investments. > as long as AMZN was >= 20% of your basket You’d have to torture causality to come up with a portfolio that would have made sense in the 90s and would have been 20%+ Amazon. It wasn’t even in the top 10 most valuable public companies by market cap [1]. [1] https://en.m.wikipedia.org/wiki/List_of_public_corporations_by_market_capitalization https://en.m.wikipedia.org/wiki/List_of_public_corporations_...
sputknick 8y ago
That's a good analogy, because over a 10-20 year time horizon it turned out to be a bargain, but over 1-2 year time horizon it was WAY overvalued.
Grazester 8y ago
Well amazon didn't achieve what is did staying a bookstore.
Spooky23 8y ago
It still is! It's a heavily leveraged company with high capital requirements. AWS makes all of the money.
fhbdukfrh 8y ago
That's pretty revisionist as to the actual reality. The vast majority where incredibly overvalued internet plays on traditional markets, exactly what the gp warns. You just picked one of the few that survived and thrived. Don't overestimate how inevitable it was that we ended up with the Amazon we see today. The biggest difference I see this time is these unicorns have actual revenue. Heavily subsidized but revenue still. Last time we had monster companies that didn't even show that given 2 dollars they could make 1, so progress?
- darawk 8y ago
  It's not revisionist. The problem is identifying which ones will survive ex ante. Given 100 assets to invest in, if you knew that one of them would become amazon in 20 years, but the other 99 would die, how do you value them? Well, you value all 100 at 1/100th the expected value of Amazon. Now, maybe you look at each individual company and try to pick a winner to put all your arrows behind, but assuming you can't reliably do that (which is a reasonable assumption), you would want to value all 100 at quite a bit more than they currently appear to be worth.
rchaud 8y ago
Well, back then the capital markets were all about value investing. And if someone in 1999 told you that a publicly traded company could run losses for 15 years straight and be 'successful', you'd have looked at him as though he were a fool. 'Valuation' these days seems to be less about determining the free cash flow of a company's operations. It's the promise of great innovation that's just around the corner. Or, more likely, it's the promise that a bigger company will acquire this company at a markup above whatever you paid.
- benj111 8y ago
  So we should be contrarian, and move back to value investing again? I wonder how these profitless companies will fare when the next recession arrives.
vm 8y ago
Amazon was also overvalued in 1999. It took almost a decade to get back to its dotcom valuation. Amazon of 1999 and 2009 were two very different companies.
cgb223 8y ago
I got a similar email about pets.com It’s all relative
simias 8y ago
Hindsight is 20/20. Maybe people in 1999 were wrong about Amazon but they were right about Pets.com and many others, your comment is just an example of survivorship bias. I mean, I'm sure you're not trying to argue that dotcom valuations weren't generally ridiculous. Besides, Amazon, Kodak and Boeing were never exactly in the same market. The parent is comparing companies that ostensibly offer similar services. If I can trust Wikipedia by 1999 Amazon "also sold video games, consumer electronics, home-improvement items, software, games and toys in addition to other items." That meant that it was already an online retail store, not a mere bookstore.
- mcguire 8y ago
  On the other, other hand, Amazon sends currently very overvalued as a retail company. (I haven't looked at the comparative sizes of its various components.) How long before Amazon sounds of its retail business?
  - dcole2929 8y ago
    Amazon hasn't been just a retail company in a very long time. It is probably THE Tech company at this point. They are a consumer electronics company having cornered the market on the cheap android tablet, and the smart speaker. They are a dominant enterprise cloud player. They own the biggest player in e-sports currently with twitch. They are in the music and video streaming business. They do government contracting at this point. The valuation is more than justified.
    - treis 8y ago
      I think the point is that Amazon as retail on the web isn't the success story of Amazon. It's all of the other things you mentioned.
    - jjeaff 8y ago
      And twitch is becoming much more than esports. With YouTube shooting itself in the foot with their copyright nonsense, there are lots of big YouTubers carefully transitioning their content and user base to twitch.
rafiki6 8y ago
Who says that feeling was wrong? At that time, Amazon was a moonshot gamble. Lots of very important things needed to line up for it to be successful, primary of which was investor confidence in a company that didn't turn a profit for most of it's existence. I still think Amazon is overvalued and the market will correct it at some point.
wernercd 8y ago
How many "over valued" "Amazons" died? Compared to the Unicorns like... well... Amazon? It's like saying "All houses built in 1900 are built SOLID because look at all the 100 year old houses that still exist" and then completely ignoring all the 100 year old houses that don't exist... Hell, look at the companies that were undervalued. GIANTS! Companies that will never fall... like, say, Blackberry and Palm?
cafard 8y ago
Yes, but then Palm had a higher market cap than the rest of 3Com, which owned 80% of it. https://en.wikipedia.org/wiki/3Com#1997%E2%80%932000 https://en.wikipedia.org/wiki/3Com#1997%E2%80%932000
parthdesai 8y ago
Hey Steve Jobs, Bill Gates and Zuckerberg dropped out of college, so everyone should drop out and they will become billionaires.
rconti 8y ago
Sometimes it's different, sometimes it's not. Tech allowed a company like Amazon to scale. Tech allows a company like Uber to allocate rides vastly more efficiently, tech allows a company like AirBnB to enable property owners to extract more value from their property. But tech doesn't allow Tesla to sell 10x more cars than Toyota (for example).
- AlexandrB 8y ago
  > Tech allows a company like Uber to allocate rides vastly more efficiently It's more accurate to say that venture capital allows Uber to subsidize rides more aggressively. I see no evidence that Uber is substantially more efficient (when you include the driver's costs) than traditional taxi companies. Edit: Uber has also managed to skirt a bunch of labor laws by claiming their employees are contractors. I guess that's a kind of "efficiency".
  - rconti 8y ago
    I think it's unquestionable that tech like Uber's can/does allocate cars and rides more efficiently. The taxi model relies on drivers circling looking for a fare and phone dispatch with, at best, a dispatcher seeing GPS cab location on a screen and trying to eyeball-match it to the caller's location. (or, at worst, caller-reported location, and radioing a bunch of cabs asking them "hey, where you at?") At its most efficient, an Uber model can automatically and predictively allocate rides based on realtime rider and driver current and predicted locations with realtime traffic/travel data. There's simply no comparison. The extent to which rides are cheaper due to skirting of regulations, extracting money from VCs, pushing costs onto drivers, is effectively a separate issue. That is to say, Uber can break many laws, screw over drivers, flood the market with way too many cars, all while losing money, but none of that means that the dispatch model isn't inherently more efficient.
    - chipotle_coyote 8y ago
      The dispatch model is also relatively easily copyable, though. I don't want to downplay the amount of tech work that went it, but it's not an insurmountable obstacle -- taxi companies could sign up with a service like Curb or Easy, or even create their own like Yellow Cab Houston's Hail a Cab.
achillesheels 8y ago
Include me in the same boat, but that was many years before I learned value investing and fundamentally analysis of equities. One of which is gross margin analysis. Amazon, despite losing money, had very competitive gross margins from day one. I think pets.com was literally losing money on every product they sold (but don’t quote me), which is not sustainable.
- joejerryronnie 8y ago
  They were losing money on each sale but they planned to make it up in volume.
dragonwriter 8y ago
> In 1999 there was an email going round about how ridiculous dotcom valuations were. Which, while some of the examples sometimes quoted survived, was generally validated by the 2000 crash.
ptero 8y ago
IMO Amazon and most other dotcom companies were waaay overvalued at the tail end of the dotcom boom and many companies with hefty valuations from those days do not exist today. What made Amazon survive (and achieve valuations way in excess of those in 1999) was not the fact that it had something super valuable then, but that it relentlessly innovated, stayed flexible (an online bookstore offering a computing cloud services, what a weird idea) and executed well enough. And had enough money and controlled costs well enough to reach profitability. For every Amazon there are hundreds of Enrons and WorldComs.
casual_slacker 8y ago
Amzn (adjusted for splits/etc) had a peak value of $107 in 2000 and a low of $7 in 2001.
pjc50 8y ago
If you'd invested in Amazon in 1999, you'd have lost 80% over the next year. It stayed flat until about 2008. It's difficult to decompose a stock price, but I think Amazon gets most of its from AWS.
wil421 8y ago
What about pets.com and webvan? I feel like we are back in the webvan days again. Except the companies figured out they could trick regular folk into doing deliveries instead of driver who is an actual employee with some kind of benefits.
- dkjshfajskdfa 8y ago
  I think the key difference is the ubiquity of smart phones and the changes to the labor market after the panic of 08.
Brockenstein 8y ago
During the dotcom bubble thousands of companies were way over valued, where are they now? Mostly gone. Amazon survived and evolved. They actually were the exception. That doesn't mean every company that you can imagine being in a similar boat to amazon is going to end up in the same boat as amazon or even close to it. Not to mention when the dotcom bubble popped Amazon's stock price took a beating and didn't really surpass its dotcom bubble peak until fall 2009, 9 years later...

zwkrt 8y ago

Pets.com was also overvalued, right? It's easy to see the winners in hindsight.

wuliwong 8y ago
It went out of business in 2000 so I guess any valuation over zero turned out to be too high?
coldcode 8y ago
Pets went out of business trying to ship heavy dog food for free. But today the logistics for that actually exists. Often it doesn't pay to be too early. If you are too early you need more cash to stick around until you are proven right. Webvan was another example, today food shipping businesses are everywhere (whether they make money or not one can argue) but back then they were too early and tried too hard before the logistics worked.
- JohnFen 8y ago
  > Often it doesn't pay to be too early As the old adage goes -- the pioneers get all the arrows.
  - Atheros 8y ago
    The second mouse gets the cheese.
mrnobody_67 8y ago
Chewsie sold for $3.35 billion recently...

ironcan 8y ago

On the flip side, if it wasn't Amazon mentioned but pets.com, they were entirely right.

bryanlarsen 8y ago
I guess the right question is, was a basket containing Amazon.com, pets.com and all the rest overvalued? Amazon is up about 15X since its peak before the crash, the dow is at 3X over the same period. So as long as AMZN was >= 20% of your basket, then it was fairly valued. Sounds about right.
- bilbo0s 8y ago
  >So as long as AMZN was >= 20% of your basket... and there's the rub, knowing, a priori, what the proper balance should be.
  - deleted 8y ago
    [deleted]
- Cthulhu_ 8y ago
  Amazon also aggressively and effectively expanded from being "just" a bookstore to a cheap store that sells everything, and diversified even further by effectively creating the multi-billion dollar cloud computing market, which in turn created the hyperscaling startup boom. Amazon deserves that valuation for that (not so much for its extorsion of its employees though; you'd expect one of the highest valued companies of the world to pay its employees accordingly)
- JumpCrisscross 8y ago
  > was a basket containing Amazon.com, pets.com and all the rest overvalued? Yes. This has been extensively studied. Almost every investor who deployed new capital in the late 90s lost money on those investments. > as long as AMZN was >= 20% of your basket You’d have to torture causality to come up with a portfolio that would have made sense in the 90s and would have been 20%+ Amazon. It wasn’t even in the top 10 most valuable public companies by market cap [1]. [1] https://en.m.wikipedia.org/wiki/List_of_public_corporations_by_market_capitalization https://en.m.wikipedia.org/wiki/List_of_public_corporations_...

sputknick 8y ago

That's a good analogy, because over a 10-20 year time horizon it turned out to be a bargain, but over 1-2 year time horizon it was WAY overvalued.

Grazester 8y ago

Well amazon didn't achieve what is did staying a bookstore.

Spooky23 8y ago

It still is! It's a heavily leveraged company with high capital requirements. AWS makes all of the money.

fhbdukfrh 8y ago

That's pretty revisionist as to the actual reality. The vast majority where incredibly overvalued internet plays on traditional markets, exactly what the gp warns. You just picked one of the few that survived and thrived. Don't overestimate how inevitable it was that we ended up with the Amazon we see today. The biggest difference I see this time is these unicorns have actual revenue. Heavily subsidized but revenue still. Last time we had monster companies that didn't even show that given 2 dollars they could make 1, so progress?

darawk 8y ago
It's not revisionist. The problem is identifying which ones will survive ex ante. Given 100 assets to invest in, if you knew that one of them would become amazon in 20 years, but the other 99 would die, how do you value them? Well, you value all 100 at 1/100th the expected value of Amazon. Now, maybe you look at each individual company and try to pick a winner to put all your arrows behind, but assuming you can't reliably do that (which is a reasonable assumption), you would want to value all 100 at quite a bit more than they currently appear to be worth.

rchaud 8y ago

Well, back then the capital markets were all about value investing. And if someone in 1999 told you that a publicly traded company could run losses for 15 years straight and be 'successful', you'd have looked at him as though he were a fool. 'Valuation' these days seems to be less about determining the free cash flow of a company's operations. It's the promise of great innovation that's just around the corner. Or, more likely, it's the promise that a bigger company will acquire this company at a markup above whatever you paid.

benj111 8y ago
So we should be contrarian, and move back to value investing again? I wonder how these profitless companies will fare when the next recession arrives.

vm 8y ago

Amazon was also overvalued in 1999. It took almost a decade to get back to its dotcom valuation. Amazon of 1999 and 2009 were two very different companies.

cgb223 8y ago

I got a similar email about pets.com It’s all relative

simias 8y ago

Hindsight is 20/20. Maybe people in 1999 were wrong about Amazon but they were right about Pets.com and many others, your comment is just an example of survivorship bias. I mean, I'm sure you're not trying to argue that dotcom valuations weren't generally ridiculous. Besides, Amazon, Kodak and Boeing were never exactly in the same market. The parent is comparing companies that ostensibly offer similar services. If I can trust Wikipedia by 1999 Amazon "also sold video games, consumer electronics, home-improvement items, software, games and toys in addition to other items." That meant that it was already an online retail store, not a mere bookstore.

mcguire 8y ago
On the other, other hand, Amazon sends currently very overvalued as a retail company. (I haven't looked at the comparative sizes of its various components.) How long before Amazon sounds of its retail business?
- dcole2929 8y ago
  Amazon hasn't been just a retail company in a very long time. It is probably THE Tech company at this point. They are a consumer electronics company having cornered the market on the cheap android tablet, and the smart speaker. They are a dominant enterprise cloud player. They own the biggest player in e-sports currently with twitch. They are in the music and video streaming business. They do government contracting at this point. The valuation is more than justified.
  - treis 8y ago
    I think the point is that Amazon as retail on the web isn't the success story of Amazon. It's all of the other things you mentioned.
  - jjeaff 8y ago
    And twitch is becoming much more than esports. With YouTube shooting itself in the foot with their copyright nonsense, there are lots of big YouTubers carefully transitioning their content and user base to twitch.

rafiki6 8y ago

Who says that feeling was wrong? At that time, Amazon was a moonshot gamble. Lots of very important things needed to line up for it to be successful, primary of which was investor confidence in a company that didn't turn a profit for most of it's existence. I still think Amazon is overvalued and the market will correct it at some point.

wernercd 8y ago

How many "over valued" "Amazons" died? Compared to the Unicorns like... well... Amazon? It's like saying "All houses built in 1900 are built SOLID because look at all the 100 year old houses that still exist" and then completely ignoring all the 100 year old houses that don't exist... Hell, look at the companies that were undervalued. GIANTS! Companies that will never fall... like, say, Blackberry and Palm?

cafard 8y ago

Yes, but then Palm had a higher market cap than the rest of 3Com, which owned 80% of it. https://en.wikipedia.org/wiki/3Com#1997%E2%80%932000 https://en.wikipedia.org/wiki/3Com#1997%E2%80%932000

parthdesai 8y ago

Hey Steve Jobs, Bill Gates and Zuckerberg dropped out of college, so everyone should drop out and they will become billionaires.

rconti 8y ago

Sometimes it's different, sometimes it's not. Tech allowed a company like Amazon to scale. Tech allows a company like Uber to allocate rides vastly more efficiently, tech allows a company like AirBnB to enable property owners to extract more value from their property. But tech doesn't allow Tesla to sell 10x more cars than Toyota (for example).

AlexandrB 8y ago
> Tech allows a company like Uber to allocate rides vastly more efficiently It's more accurate to say that venture capital allows Uber to subsidize rides more aggressively. I see no evidence that Uber is substantially more efficient (when you include the driver's costs) than traditional taxi companies. Edit: Uber has also managed to skirt a bunch of labor laws by claiming their employees are contractors. I guess that's a kind of "efficiency".
- rconti 8y ago
  I think it's unquestionable that tech like Uber's can/does allocate cars and rides more efficiently. The taxi model relies on drivers circling looking for a fare and phone dispatch with, at best, a dispatcher seeing GPS cab location on a screen and trying to eyeball-match it to the caller's location. (or, at worst, caller-reported location, and radioing a bunch of cabs asking them "hey, where you at?") At its most efficient, an Uber model can automatically and predictively allocate rides based on realtime rider and driver current and predicted locations with realtime traffic/travel data. There's simply no comparison. The extent to which rides are cheaper due to skirting of regulations, extracting money from VCs, pushing costs onto drivers, is effectively a separate issue. That is to say, Uber can break many laws, screw over drivers, flood the market with way too many cars, all while losing money, but none of that means that the dispatch model isn't inherently more efficient.
  - chipotle_coyote 8y ago
    The dispatch model is also relatively easily copyable, though. I don't want to downplay the amount of tech work that went it, but it's not an insurmountable obstacle -- taxi companies could sign up with a service like Curb or Easy, or even create their own like Yellow Cab Houston's Hail a Cab.

achillesheels 8y ago

Include me in the same boat, but that was many years before I learned value investing and fundamentally analysis of equities. One of which is gross margin analysis. Amazon, despite losing money, had very competitive gross margins from day one. I think pets.com was literally losing money on every product they sold (but don’t quote me), which is not sustainable.

joejerryronnie 8y ago
They were losing money on each sale but they planned to make it up in volume.

dragonwriter 8y ago

> In 1999 there was an email going round about how ridiculous dotcom valuations were. Which, while some of the examples sometimes quoted survived, was generally validated by the 2000 crash.

ptero 8y ago

IMO Amazon and most other dotcom companies were waaay overvalued at the tail end of the dotcom boom and many companies with hefty valuations from those days do not exist today. What made Amazon survive (and achieve valuations way in excess of those in 1999) was not the fact that it had something super valuable then, but that it relentlessly innovated, stayed flexible (an online bookstore offering a computing cloud services, what a weird idea) and executed well enough. And had enough money and controlled costs well enough to reach profitability. For every Amazon there are hundreds of Enrons and WorldComs.

casual_slacker 8y ago

Amzn (adjusted for splits/etc) had a peak value of $107 in 2000 and a low of $7 in 2001.

pjc50 8y ago

If you'd invested in Amazon in 1999, you'd have lost 80% over the next year. It stayed flat until about 2008. It's difficult to decompose a stock price, but I think Amazon gets most of its from AWS.

wil421 8y ago

What about pets.com and webvan? I feel like we are back in the webvan days again. Except the companies figured out they could trick regular folk into doing deliveries instead of driver who is an actual employee with some kind of benefits.

dkjshfajskdfa 8y ago
I think the key difference is the ubiquity of smart phones and the changes to the labor market after the panic of 08.

Brockenstein 8y ago

During the dotcom bubble thousands of companies were way over valued, where are they now? Mostly gone. Amazon survived and evolved. They actually were the exception. That doesn't mean every company that you can imagine being in a similar boat to amazon is going to end up in the same boat as amazon or even close to it. Not to mention when the dotcom bubble popped Amazon's stock price took a beating and didn't really surpass its dotcom bubble peak until fall 2009, 9 years later...