Cool graphic from tomorrow’s NYT:

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Source:
Is It a New Tech Bubble? Let’s See if It Pops
EVELYN M. RUSLI and VERNE G. KOPYTOFF
NYT, March 27, 2011
http://www.nytimes.com/2011/03/28/technology/28bubble.html

Category: Psychology, Technology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “New Tech Bubble?”

  1. idaman says:

    Remember the old rule of thumb, the more money chasing a sector, industry or country, the lower the returns will be. I can’t remember who did the studies, there were two of them, that showed in emerging markets, the fastest growing countries produced the lowest stock market returns. The reason, investors paid relatively to much for the underlying growth.

    Therefore, these companies may produce great returns for their founders and early investors, but anybody going in now, and these extreme valuations, would be better of buying WalMart.

  2. idaman says:

    And my personal peeve: why is everything that is overvalued called a “bubble”?

    When overvalued markets reverse, it’s a correction.

    When bubbles pop, their is devastation is to the broader economy.

    So no, it is not a tech bubble, but just a severely overvalued sector (so far).

  3. Stuart Douglas says:

    Not sure if it is the same kind of bubble. In 2000 I had a 60 year old coworker telling me that he was moving all of his investment dollars into Internet stocks. let’s just say it didn’t work out like he had planned. There is not that kind of talk from “average” people right now. Maybe it’s because they are not publicly traded yet. An institutional private placement bubble?

  4. investorinpa says:

    I agree with Stuart…technically, its not a bubble yet because people don’t own shares in these companies. On one hand, the 1999 graph is a bit misleading as it shows e-tailers that went public just that year. A more accurate graph would be one that would show the first wave of e-commerce companies circa 1997, such as Amazon, Ciena, RF Micro, Earthlink as well as strong non-tech companies like Chicago Iron Bridge, Jones LaSalle, etc. It sounds like the Facebook group will be the first wave, not the final tally.

  5. Walker says:

    I understand the revenue model of Zynga a million times more than I understood the revenue model of most of the dot-com companies. There is an issue of whether they can retain market share as social gaming becomes more competitive. But I certainly understand how they make money.

  6. Frwip says:

    I agree with Stuart too. Those valuations are very ‘narrow’, just a select club of big boys playing with very cheap money and waving their big numbers at each other. Yet, as virtual as they are, those numbers have tangible effects. They ‘validate’ the sector and push other investors to enter it. So, it could be the start a true bubble.

  7. snapwizard says:

    Usually when people first start talking about bubbles, it just means that the bubble will last a few more years.

  8. brianinla says:

    Debt in ’99: $5.6 trillion. Debt in ’11: $14.2 trillion. Purchasing power of a dollar is nowhere close to where it was 12 years ago. Nominal numbers don’t mean crap. Plus, as is always the case, the insiders will make bank and the bagholders will be carted off to the trailer parks of the ill-timed.

  9. Jack says:

    Mr. Ritholtz,

    Is this a teaser ad? Your headline is a question. You’re a “gimme the facts” guy.

    Is it a tech bubble in the making?

  10. If you see a question mark its usually because I don’t really know . . .

  11. LLouis says:

    Facebook still has a lot of growth potential… more and more, Internet = Facebook (positioning itself to be an essential part of the entire online experience on a global scale) …
    smartphones sales are on a exponential growth, and they’re getting smarter and smarter (high-end models with more computing power, mid-range models more affordable) … tablets sales expected to more than double in 2011 … also driving the sales of smartphones is users replacing their phone with a new model before 2 years (or buying a second one I suppose)

    http://www.ft.com/cms/s/2/57933bb8-fcd9-11df-ae2d-00144feab49a.html#axzz1HqubNaD9
    http://www.mobiledia.com/news/81680.html

    Don’t remember where, I read that in some places people have (or will have) access to mobile phones before having electricity ! (but then how will they charge their phones ? solar powered phones or what else…)

    And here’s a very interesting link to a videoclip of a 30 minutes presentation about the future growth of the mobile internet by Mary Meeker, managing director at Morgan Stanley:

    http://oxstones.com/the-astounding-future-growth-of-the-mobile-internet-video-of-mary-meeker-managing-director-at-morgan-stanley/
    (first posted by Adam Siemiginowski)

    a few key points:
    - the mobile internet will approach 10 billion devices
    - 5 huge trends are converging: 3G, Social Networking, Video, VoIP, & Impressive Mobile Devices
    - game-changing communication / commerce platforms are emerging rapidly. (Social Network & Location-Free) . . .

  12. gman says:

    It is not a bubble until the public get there hands on the shares and they rally another 30%! Then comes the 85% shearing of the sheeple!

  13. SteveC says:

    The valuation on Facebook is a joke. All we need is for Facebook to buy a large established media company like Disney (recall AOL and TW), and we’ll be partying like 1999. I predict in 10 years, no-one will remember what Facebook is except from history books.

  14. ricecake says:

    Well, during the last tech bubble days how many tech companies it took to equal to Apple alone today? Do you think Apple is a bubble?

    Facebook is no Apple of course.

    Many people I know at work and classes are talking about Facebook and use Facebook. Why not? It’s free it’s fun and it make the average Joes look cool, trendy up for the scratch. It’s also very fashionable way for people to connect to one another. But this may all change quickly. Years ago before Facebook becoming hot, I was in Myspace world and like it. But don’t know exactly since when it all changed. Suddenly. people were leaving Myspace moving into Facebook. It started from one “friend” announced move to Facebook. Then his/her MySpace “Friends” all followed the suit. Herd mentality, you might call it. I believe it was because people dislike very much about the change in MySpace ownership which turned MySpace into a commercial spam site stuffed with Advertisement. Also the site becomes less and less user friendly. They sell too much too fast. The culture changed.

    So how Facebook’s going make money? Will it ends up like MySpace in the future? It’s a big possibility.

    Or Will Facebook developed into a monopoly Social Network carrier, like At &T’s one of the only two phone carriers left in the U.S.A? Unless Facebook and its’ investors believe that they already fiound their internet social networking monopoly power, Facebook do look and feel like a big bubble and will burst one day when the herd end users -customers move to other newer sites.

  15. ES says:

    I think average Joe is too tramatized by recent experinces to fall for another tech bubble. This time it is the smart money that uses cheap money that blows the bubble. But there will be no hand off of the baton to an averge Joe. An average Joe is broke ans squeezed and doesn’t have the same access to cheap money because he is alredy overleverged and underwater. For this reason I beleive the bubble will pop as soon as cheap money is withdrawn or the leverage of the smart money peaks. I give it no more than 12 months, it is probably closer to 6 months.

  16. V says:

    Calculate each as a % of monetary stimulus and we could be looking at a higher upside target yet.

  17. ZenRazor says:

    Early employees of Facebook are supposedly able to unload up to 20% of their holdings at a $65 billion valuation in coming weeks. Groupon’s number seems to move higher by the hour, though Zynga seems to be on the decline in the coffee shop valuations of Silicon Valley.

    I know a few Facebook employees and they are clever and have some interesting ideas for how they will monetize the network, but it will be a challenge for me to not wear a short-bias when this hits the public markets.

  18. macrotrader603 says:

    JNPR went from 15 to 250…ahhh the good old days…

  19. LLouis says:

    Correction about Mary Meeker, she is now partner at Kleiner Perkins Caufield & Byers (KPCB) since last december

    http://www.fastcompany.com/women-in-tech/2011/executives/mary-meeker
    http://www.kpcb.com/team/index.php?Mary%20Meeker

    2 videoclips with her at the Think Mobile 2011 in New York last february (an interview & her session):

    http://www.ditii.com/2011/02/24/think-mobile-2011-mary-meeker-perspective-on-the-growth-of-mobile/

  20. lshivamber says:

    Ah Barry, the folly of NYT understanding real economic comparisons. $71B in 1999 dollars adjusted at 5% inflation requires a 2011 value of $127.5B. If Linkedin is the largest of the remaining 2011 comapnies at $2.0B, then we could have at least another 28 companies in this chart (and that is using the $2.0B number for each of the rest). The comparison would not be so interesting if we said 24 companies represented $71B valuation in 1999, whereas 33 or more account for the equivalent 2011 value.

    The only valid point from the NYT comparison relates to how outsized Facebook is valued (40% of the $127.5B 2011), versus Agilent at 20%. Not really a bubble question, but rather a single company valuation question.

  21. budhak0n says:

    lol macro now you’re showing your age.

    How’s about Vert ? Or GLW had a little run there when everything was going to be ball bearings these days.
    Don’t you know? It’s all fiber optics these days . Get with the program.

    By tech bubble BR, what names are we referring to this time around because this isn’t a sector kind of spiel. Not like Novell’s going to hook on for the ride.

    My mind is a bit of mush after the complete nonsense of the past few years. It’s difficult to see the growth potential in any of this but it’s there.

    Wireless tech is going to be much bigger. What’s going to happen to retail? The death nail of the big box has been heralded before. It’s like the Auto industry. Do we really feel like we’re not going to need a central place for people to actually go see the product at all?

    Can I buy shares of Ricky Gervais?

  22. gd says:

    Agilent was the direct descendant of the original HP; HP decided they could make more money with printers and PCs, so spun off the test & measurement group. They made very real boxes that did useful stuff. Not exactly a dot.com. Not worth $13.6B, but not petfood.com, either.

  23. cognos says:

    This is a pretty poor comparison… bc the companies selected in 1999 are just pre-IPO ones and no other stats like “revenue” are shown.

    Infospace was once the worlds most valuable technology company… surpassing Microsoft. Now THAT’S A BUBBLE!

  24. gordo365 says:

    Interesting – all the companies highlighted on the left offered a product/service that the user paid for. Sure they were valued based on eyeballs and click through rates – but at least the user was going to a site, paying for something etc.

    All the companies on the right – the user IS THE PRODUCT. Experience is free. They collect reams of personal data about the user. They sell advertising. But the also sell data about you.

    Net net – the most valuable IPOs this year are EVIL and a danger to your children!

    If Twitter, Facebook etc. were people, you would spray them with a hose to keep them off your front lawn.

  25. Livermore Shimervore says:

    we need corresponding circles on 1999 revenues vs. 2011 revenues.