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On the whole an excellent article, but i think there is one big flaw in his reasoning. Hs opening argument is that back in 2000, Ebay, Amazon, Cisco, and Akama

by adamt 16y ago

On the whole an excellent article, but i think there is one big flaw in his reasoning. Hs opening argument is that back in 2000, Ebay, Amazon, Cisco, and Akamai were trading at ridiculous multiples, but they are now much more sensible. The issue with this argument is Ebay, Akamai etc were the Zynga, Twitter and Groupon's of their day. They are now businesses with 10 years of trading history and relative flat revenues. For example Ebay's current revenue annual growth is just 5% and Akamai's 6%. It's hardly surprising that their multiples are low now (for comparison eBay grew 100% year on year back in 2000) If he put Twitter, Facebook, Zynga and Groupon in that table then I think the numbers of today would be as bad as the numbers of 2000. e.g. Facebook and Groupon is at roughly 25 EV/Revenue (where Cisco and Amazon were in 2000) and Twitter is prob more like 100 (comparable to ebay). The PE ratios (for those that make profit in this group) would be even more stark. Obviously the companies I've listed are still private, but that is more a factor of the IPO markets, and companies choosing to delay an IPO where as in 2000 a company like Facebook or Twitter would have IPO'd by now.

phil 16y ago
In other words you're saying that a bubble might only affect new companies spawned by that bubble. That wasn't true in the late 90's though -- just look at the telecoms. Many of them had substantial trading histories, but they also saw big runups in their valuations followed by big drops in the early 2000s. Also, the author talks about this in the first paragraph of his post: Similarly, in recent high profile private financing rounds for private technology companies with valuations over $1B, the valuation multiples were at or below corresponding multiples for publicly traded companies such as Google.
- adestefan 16y ago
  The bubble affects the companies that are trying to get a piece of the bubble. The runups in the telecom industry was due to them moving into laying fiber optics spurred in large part by Global Crossing flying high.
  - phil 16y ago
    Sure, but aren't Google, Salesforce, Amazon and others doing much the same thing by building/buying cloud computing platforms, social networking products, and so on? That's widening the companies from those Ben Horowitz named, so maybe valuation:value IS climbing for public companies that are trying to get in on the hot stuff of the day. That would certainly be an interesting argument, I'd love to see someone make it :)
pedalpete 16y ago
But he states 'Bubble era valuation multiples were more than 10 times higher than current comparable multiples'. That is essentially putting the new best of breed in those tables. We don't have public markets to go by, but he's using private market figures to compare the two.

by adamt 16y ago

phil 16y ago

In other words you're saying that a bubble might only affect new companies spawned by that bubble. That wasn't true in the late 90's though -- just look at the telecoms. Many of them had substantial trading histories, but they also saw big runups in their valuations followed by big drops in the early 2000s. Also, the author talks about this in the first paragraph of his post: Similarly, in recent high profile private financing rounds for private technology companies with valuations over $1B, the valuation multiples were at or below corresponding multiples for publicly traded companies such as Google.

adestefan 16y ago
The bubble affects the companies that are trying to get a piece of the bubble. The runups in the telecom industry was due to them moving into laying fiber optics spurred in large part by Global Crossing flying high.
- phil 16y ago
  Sure, but aren't Google, Salesforce, Amazon and others doing much the same thing by building/buying cloud computing platforms, social networking products, and so on? That's widening the companies from those Ben Horowitz named, so maybe valuation:value IS climbing for public companies that are trying to get in on the hot stuff of the day. That would certainly be an interesting argument, I'd love to see someone make it :)

pedalpete 16y ago

But he states 'Bubble era valuation multiples were more than 10 times higher than current comparable multiples'. That is essentially putting the new best of breed in those tables. We don't have public markets to go by, but he's using private market figures to compare the two.