Snot blistering

A little more than a month ago, Michael Arrington (Michael Arrington - founder and editor of TechCrunch) wrote a great note with the headline " We're In the Middle Of A Terrible Blubble! ", Playing with words in an invisible game in which many did not notice the difference between the "bubble" and “chatter”, and the difference between what happened on the Internet in 2000, and the Internet today. In short, the essence of the publication is as follows: venture capitalists love to talk about appraisal bubbles, in order to fight (those who have invested, silently count money) with an increase in value, to which the press reacts almost immediately. After all, we all love drama, especially fatal.

The 1999 Nasdaq went crazy just like that, without any real relationship between the value of the shares, and the operating results. Today, nothing of the kind is happening, partly because only a few companies enter the primary stock market. On the other hand, many of the ultra-expensive private companies, like Facebook, Groupon or Zynga, show revenues that partly justify their high capitalization. And although Twitter is still not heated enough for real profit, it can be considered the exception to the rule.

But, as Arrington notes, within a month the market has changed significantly - and it’s impossible not to agree with him. Over the past couple of weeks, truly exciting events have occurred, which make us think about the health of the entire ecosystem of young companies (startups, we differ).

Perhaps that is why Michael entered into a dispute with Marc Andreessen (Marc Andreessen - co-author Mosaic, co-founder of Netscape, the first name of one of the most expensive venture capital funds: a16z ), speaking at the AllThingsD conference with the words that it is not (still) no bubble in the technology sector. And if one can agree with his conclusion, the logic of thinking leads to certain thoughts: “The key characteristic of a bubble is that no one assumes the existence of a bubble.” Saying this, Andreessen clarifies that in 1999 people were in a euphoric state: “If everyone is upset, then this is a good sign, and I hope that there will be many more bubble stories”.
')
Parrying, Arrington notes that in 1999 there was no trace of euphoria. Perhaps, those who counted the money from investors really smiled at 32 teeth, but everyone else very willingly, and actively, talked about an increasingly inflating soap ball. So, the headline of one of the 1999 New York Times articles says: “Is the fever in Internet company stocks a bubble that is about to explode?” Approximately the same thing can be found in Forbes of the time. There are a lot of examples.

Of course, this does not explain absolutely everything. As is the case with the recession, any ambitious economist will predict a bubble burst every year, year after year. After all, no one remembers others' blunders, but you have an excellent reason to write a book, once you are right. Arrington in his previous post quite logically remarks: “Announce the bubble early, and announce it often.”

But Mark Andreessen’s argument that in 1999 they didn’t talk about collapse was simply not true.

Another, seemingly reasonable, his argument is that: "It can not be a bubble because the stock market does not behave as if the bubble really was." Apparently, with the exception of LinkedIn, which recently entered the public market, the P / E ratio (price / earnings, share price / earnings per share) exceeds 2000. Or ZipCar , which has not even received the first profit, therefore does not have an official P / E figure but it costs almost a billion dollars and is trading on the NASDAQ.

But, as Andreessen tells us, steep and big companies have reasonable cost-benefit ratios. And he is right: Microsoft's P / E was 72 in 1999 , today the figure is less than 10.

And this is the only strong argument based on the facts: things are going fine, because the stock market has not yet gone crazy.

Although there are already obvious, and quite definite, signs that the securities are moving in the direction of the next technological explosion of value, and the subsequent collapse. Imagine what would happen if tomorrow Facebook will be released for sale. Do you think that they will immediately plunge into their cost ceiling, which by the most courageous estimates could be $ 200 billion? Why not, because today this private company is worth $ 75 billion in closed secondary markets.

Google is worth $ 170 billion, Apple - $ 300 billion (by the way - like HP, Dell and Microsoft together).

And therein lies the problem. The market is ready to die for the opportunity to make a profit, and investors will jump on board each IPO, accelerated to the desired speed, assessing it so high that the company will suffer from artificially high prices, in the absence of constantly maintained demand. And the bubble in private markets can very easily turn into a “public” bubble that will explode not only the NYSE and NASDAQ, but also the European markets. Hardly anything can stop it. And even less likely that someone is going to do it.

We are used to talking about the collapse of dot-coms in zero, but today everything begins on the market, which we (ordinary people in the Internet) cannot follow at all in the private market. In March, Andreessen’s fund partner, Ben Horowitz ( Bet Horowitz - worked with Andreessen at Opsware, later sold by Hewlett-Packard for $ 1.6 billion in cash) argued that in fact the estimates of private companies were not at all overestimated: “In recent rounds of financing private technology companies with a capitalization of more than $ 1 billion, valuation multipliers were either comparable, or lower than those owned by public companies like Google. ”

And if this argument is really true (with the exception of the situation with Twitter, which is still "selling" the user base), now more and more companies are starting to appear that suck such multipliers out of their finger. For example, AirBnB closed a round of financing at a valuation of more than $ 1 billion. This is a very cool start-up, which, however, has a low income and in no case can not be profitable. What is most interesting - the Andreessen Horowitz foundation was there in the first place, with the thickest wallets.

One cannot but enjoy the desire of Mark and Ben to bet big on risky ideas. One can only hope that behind them is something more than a banal desire to enrich themselves and they remember what happened in the 2000s.

And they, for certain, really remember. Because so far all signs point to the creation of a new bubble, which is likely to begin to swell rapidly at the end of this year, when more and more companies will apply for a public offering of securities. And the minute Mark Zuckerberg opens trading on NASDAQ, where Facebook papers will start spinning, beware. Buy as much as you can hold, put it in your pockets and give it to your friends, because fabulous money will be earned before everything really starts to burn with a hell of a fire.

via TechCrunch