5 ms·

This talk of bubbles reminds me of 2007 when everyone, including all the experts, was certain Facebook was a bubble at a valuation of $15 billion after Microsof

This talk of bubbles reminds me of 2007 when everyone, including all the experts, was certain Facebook was a bubble at a valuation of $15 billion after Microsoft invested; now it's worth $200+ billion. Then in 2012 after Facebook's hugely publicized botched IPO and Nasdaq error, all the experts again said the web 2.0 bubble had burst; the stock price and earnings have since doubled. Unlike the big blowups of Friendster, Myspace, Digg, etc..these post-2008 web 2.0 valuations have proven to be extremely sticky. Pinterest, Twitter, Dropbox, Air B&B, Tinder, Snapchat, Whatsapp, Uber, Instagram...all keep going up with no end in sight, year after year until either IPO (which finally creates volatility) or buyout. There's hardly any big failures or blowups, except perhaps Zynga and Groupon (although it's still worth $5 billion). My prediction is these web 2.0 valuations will keep rising for many years to come because that is the path of least resistance, and the investor demand and user growth for these companies is seemingly unquenchable. The unending web 2.0 boom and unending wrong predictions about its demise show how these 'obvious' parallels to the old tech bubble of 1995-2000 are just so wrong. There's more at play here, such as the investor flight to quality (more money chasing fewer companies), huge user growth, huge monetization potential from smartphone engagement, the very large millennial population that use these services, and ability of these web 2.0 companies to carve out niche dominance and then keep it. Within the next year or two, we're probably going to see Uber being worth $100 billion before IPO, Snaphat $50 billion, Tinder $10 billion, Air B&B $50 billion, etc. Take every valuation and quadruple it. Back in the 90's, $100 million was a big deal; now that's just a rounding error or the equity of just a single early employee. Insane, but very prosperous times we're living in. And it's got a long way to go.

Klinky 12y ago
There were plenty of cheerleaders back in the late 90s too, saying it's just the beginning. Most of the social companies have yet to really show they can be profitable other than being bought out. Valuations are often grossly overinflated. AirBnB and Uber are both skirting regulations and pushing risks onto their userbase. Regulations or a few continued instances of bad PR could pop their valuation bubble in an instant. Compare companies overinflated valuations with how much they are actually being sold for or how much they're getting through IPOs.
- flyinglizard 12y ago
  I feel like Airbnb and Uber are both large and popular enough, at this point, to push regulation in the direction they see fit. Anyone standing in their path will be labeled protector of the old monopolies and anti-consumer.
  - desdiv 12y ago
    Regulation change doesn't benefit only Uber though. It benefits all current riding sharing companies, as well as any future ones that might join the fray. In that sense, regulation change doesn't increase Uber's intrinsic value at all. If Google, for example, joins the ride sharing game then Uber will be in serious trouble.
    - chambo622 12y ago
      Google Ventures is a major investor in Uber - does Google often invest in companies that they go on to compete with?
      - blister 12y ago
        If they can build an entire fleet of automated cars? Abso-freaking-lutely. How much would you be willing to pay annually to not have to own a car but have one available at your fingertips at any time? My car payment + insurance comes to be about $7000/year. Throw in gas prices and we're probably at around $10,000 per year for my vehicle. Factor in my girlfriend and our household is at around $20k. If Google can charge me $10k-$15k annually to not own a car but be able to have it available all the time? What's $10k * 137,000,000? [1] At those levels, the failed Uber experiment can be a whimsical write-off. Or perhaps it's a strategic venture to handle some of these pesky regulations we're always talking about Uber fighting. I don't want to own a car. I just want to have the freedom to be mobile at a moments notice. [1]: http://cars.lovetoknow.com/Car_Ownership_Statistics http://cars.lovetoknow.com/Car_Ownership_Statistics
  - danieltillett 12y ago
    The problem is the underlying market for Uber (taxi and hire cars) can't generate enough profit to support their current valuation. When you add in that Uber and similar companies are destroying the monopoly rents that the industry was enjoying then the problem is even worse.
_almosnow 12y ago
I agree with you but I think Uber will devaluate to some extent and I don't see Tinder surviving...
aswanson 12y ago
The mainstream narrative, by definition, is always wrong with respect to investing, whether it be skills, tech bubbles, etc. The best thing to be is against consensus and correct, as fb was back in '06 when it was clear to everyone from middle schoolers to rupert murdoch that myspace was the ultimate in social networking. So, what say you about the future?
cantfindmylogin 12y ago
I believe what you're saying is "this time is different." No, it isn't.[1] In the ascent phase of the bubble, everyone but uber-bulls is proven wrong. But what matters is whether what is happening today in terms of valuations and capital raising/spending is sustainable. I believe it isn't. AirBnB or Uber or what have you may be a great business, but a great business can be a lousy investment at the wrong price. So you may continue be right, in the sense that share prices may keep going up, but that doesn't mean investors participating at these levels--or at the quadruple levels you forecast that may indeed come to pass--are being rational. What's happening now doesn't have to be exactly like it was in 1999, just like what happened in 1999 wasn't exactly like the Nifty Fifty stock bubble of the late 1960s. PS I had a front-row seat in 1999, as I worked for a well-known VC firm on Sand Hill (still there, still well-known). [1] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=240371 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=240371
- deleted 12y ago
  [deleted]
deleted 12y ago
[deleted]
danieltillett 12y ago
The current boom is the classic case of the market can stay irrational longer than you can stay solvent. While I agree that the valuations are detached from reality, there is no way I would attempt to try and short any of these "new darlings".
tim333 12y ago
>after Facebook's hugely publicized botched IPO and Nasdaq error, all the experts again said the web 2.0 bubble had burst I'd dispute Facebook's IPO was botched if you are treating it as a real business rather than a bubble stock. With a real business you may as well sell stock for what buyers will pay and if the price subsequently fluctuates then that's what stock prices do. The idea that flotations must be underpriced so you can give the impression of price growth and get more investors later is more of a Ponzi scheme way of doing things.
- pbh101 12y ago
  While I can't speak to the intent of the grandparent, independent of pricing strategies, Facebook's IPO was botched at the execution level: NASDAQ fell over under the load and transactions were a big mess [1]. [1] http://dealbook.nytimes.com/2012/07/01/facebook-not-feeling-friendly-with-nasdaq/ http://dealbook.nytimes.com/2012/07/01/facebook-not-feeling-... EDIT: upon re-reading, sounds like this is exactly what the GP was referring to.
chrdlu 12y ago
I completely agree with the more money chasing fewer companies idea. I think this interview with Marc Andreessen explains why there is more money for fewer companies: http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-andreessen-explains-why http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-a... The average investor loses in this scenario. Back in the day, retail investors could invest in the growth of companies. These days, the companies don't IPO until they've already grown to be very large. Definitely doesn't help the wealth gap
- mattbarrie 12y ago
  I wrote a response to that https://www.linkedin.com/pulse/20140801044817-921366-marc-andreessen-is-wrong-the-ipo-isn-t-dying https://www.linkedin.com/pulse/20140801044817-921366-marc-an...

Klinky 12y ago

There were plenty of cheerleaders back in the late 90s too, saying it's just the beginning. Most of the social companies have yet to really show they can be profitable other than being bought out. Valuations are often grossly overinflated. AirBnB and Uber are both skirting regulations and pushing risks onto their userbase. Regulations or a few continued instances of bad PR could pop their valuation bubble in an instant. Compare companies overinflated valuations with how much they are actually being sold for or how much they're getting through IPOs.

flyinglizard 12y ago
I feel like Airbnb and Uber are both large and popular enough, at this point, to push regulation in the direction they see fit. Anyone standing in their path will be labeled protector of the old monopolies and anti-consumer.
- desdiv 12y ago
  Regulation change doesn't benefit only Uber though. It benefits all current riding sharing companies, as well as any future ones that might join the fray. In that sense, regulation change doesn't increase Uber's intrinsic value at all. If Google, for example, joins the ride sharing game then Uber will be in serious trouble.
  - chambo622 12y ago
    Google Ventures is a major investor in Uber - does Google often invest in companies that they go on to compete with?
    - blister 12y ago
      If they can build an entire fleet of automated cars? Abso-freaking-lutely. How much would you be willing to pay annually to not have to own a car but have one available at your fingertips at any time? My car payment + insurance comes to be about $7000/year. Throw in gas prices and we're probably at around $10,000 per year for my vehicle. Factor in my girlfriend and our household is at around $20k. If Google can charge me $10k-$15k annually to not own a car but be able to have it available all the time? What's $10k * 137,000,000? [1] At those levels, the failed Uber experiment can be a whimsical write-off. Or perhaps it's a strategic venture to handle some of these pesky regulations we're always talking about Uber fighting. I don't want to own a car. I just want to have the freedom to be mobile at a moments notice. [1]: http://cars.lovetoknow.com/Car_Ownership_Statistics http://cars.lovetoknow.com/Car_Ownership_Statistics
- danieltillett 12y ago
  The problem is the underlying market for Uber (taxi and hire cars) can't generate enough profit to support their current valuation. When you add in that Uber and similar companies are destroying the monopoly rents that the industry was enjoying then the problem is even worse.

_almosnow 12y ago

I agree with you but I think Uber will devaluate to some extent and I don't see Tinder surviving...

aswanson 12y ago

The mainstream narrative, by definition, is always wrong with respect to investing, whether it be skills, tech bubbles, etc. The best thing to be is against consensus and correct, as fb was back in '06 when it was clear to everyone from middle schoolers to rupert murdoch that myspace was the ultimate in social networking. So, what say you about the future?

cantfindmylogin 12y ago

I believe what you're saying is "this time is different." No, it isn't.[1] In the ascent phase of the bubble, everyone but uber-bulls is proven wrong. But what matters is whether what is happening today in terms of valuations and capital raising/spending is sustainable. I believe it isn't. AirBnB or Uber or what have you may be a great business, but a great business can be a lousy investment at the wrong price. So you may continue be right, in the sense that share prices may keep going up, but that doesn't mean investors participating at these levels--or at the quadruple levels you forecast that may indeed come to pass--are being rational. What's happening now doesn't have to be exactly like it was in 1999, just like what happened in 1999 wasn't exactly like the Nifty Fifty stock bubble of the late 1960s. PS I had a front-row seat in 1999, as I worked for a well-known VC firm on Sand Hill (still there, still well-known). [1] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=240371 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=240371

deleted 12y ago
[deleted]

deleted 12y ago

[deleted]

danieltillett 12y ago

The current boom is the classic case of the market can stay irrational longer than you can stay solvent. While I agree that the valuations are detached from reality, there is no way I would attempt to try and short any of these "new darlings".

tim333 12y ago

>after Facebook's hugely publicized botched IPO and Nasdaq error, all the experts again said the web 2.0 bubble had burst I'd dispute Facebook's IPO was botched if you are treating it as a real business rather than a bubble stock. With a real business you may as well sell stock for what buyers will pay and if the price subsequently fluctuates then that's what stock prices do. The idea that flotations must be underpriced so you can give the impression of price growth and get more investors later is more of a Ponzi scheme way of doing things.

pbh101 12y ago
While I can't speak to the intent of the grandparent, independent of pricing strategies, Facebook's IPO was botched at the execution level: NASDAQ fell over under the load and transactions were a big mess [1]. [1] http://dealbook.nytimes.com/2012/07/01/facebook-not-feeling-friendly-with-nasdaq/ http://dealbook.nytimes.com/2012/07/01/facebook-not-feeling-... EDIT: upon re-reading, sounds like this is exactly what the GP was referring to.

chrdlu 12y ago

I completely agree with the more money chasing fewer companies idea. I think this interview with Marc Andreessen explains why there is more money for fewer companies: http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-andreessen-explains-why http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-a... The average investor loses in this scenario. Back in the day, retail investors could invest in the growth of companies. These days, the companies don't IPO until they've already grown to be very large. Definitely doesn't help the wealth gap

mattbarrie 12y ago
I wrote a response to that https://www.linkedin.com/pulse/20140801044817-921366-marc-andreessen-is-wrong-the-ipo-isn-t-dying https://www.linkedin.com/pulse/20140801044817-921366-marc-an...