Really. Where do people think this private capital is coming from? I guess the investment banks and fund managers who are dumping hundreds of millions into late-stage companies are doing that exclusively with the investments of wealthy people?
The fact that people aren't investing in Uber via E-Trade accounts doesn't mean that it won't hurt regular folks when the bubble pops. When this all goes south, we're going to find out that grandma's pension was tied up in it, just like last time. It's just a bit better hidden in 2015.
http://conferences.pionline.com/assets/2014_GPAS_Study_Final...
In another interesting note, this shows that pension funds in the US grew at over 6% annually between 2003-2013. The recent horror stories you're thinking of are less about pension funds, and more about grandma's savings being tied up in her own house.
For example, CALPERS targets an overall 7.5% annualized rate of return in its investment portfolio.
If the bubble pops in a way that reduces their earning potential permanently, it's a catastrophe. More likely, it's a blip. Valuations are inflated but salaries aren't. This period, in the VC-funded Valley, will be remembered bitterly but I think the damage will be minimal.
Still, I find it jarring that no one wants to speak for the real risk-takers: the engineers actually building the products, who (unlike investors) don't get to diversify and are the first to get hit when things go bad, but get such a small percentage of the upside.
The first few years of an engineers career should be seen as apprenticeship. The best way to quickly grow is to go work for a well-regarded, established company that will compensate them well and provide an environment for them to learn and grow rapidly. Engineers right out of school make $200k/yr working for the likes of Google or Facebook. After a few years of that, they can go try to start a company or negotiate a decent amount of equity at an early-stage startup that they believe in, and they'll have had the opportunity to actually save some money to exercise those options when the time comes.
Of course, this advice doesn't apply to unicorns which, by definition, most people are not.
Anyone have any data to support or refute this hypothesis?
However, the NASDAQ was basically where it is now. Many people I knew were getting multiple job offers with incentives like a Boxster S or a 4-day workweek thrown in.
We may or may not be in a bubble now, but the excessiveness of that time really felt like a different level to me.
With this bubble, I'm bearish not because I don't think that the general investment thesis of tech disrupting existing markets is wrong, but because I don't think these particular companies will be the ones left standing when the dust settles. Basically, I'm betting that technological progress will be more dramatic than we expect, and that these are early market leaders that will then fade away into obscurity as future technology changes the assumptions they're built upon. Uber and Lyft, for example, are dead as soon as self-driving cars become viable. DropBox is vulnerable to the end of the file; in recent devices, the filesystem is quite hidden and peoples' workflows just don't involve creating files, they involve inputting information in some specialized cloud service provider. AirBnB may end up being eaten by itself: as it becomes more viable economically, you'll see more purpose-built construction being built to be listed straight on AirBnB, and at some point it becomes worth it to ignore the consumer sellers entirely and just act as a broker between commercial property owners and travelers.
True, if they're not nimble enough to adapt. But think about that statement applied to Netflix 10 years ago. "Netflix is dead as soon as video streaming becomes viable" (i.e. They were a DVD rental business).
I could see Uber and Lyft adding a fleet of self-driving cars for people to call on-demand. Or even closer to their current model: maybe they sign up owners of those cards to sublet them in the middle of the day while they're at the office.
I don't think most of us—me included—can fully appreciate the massive shift that will come if and when cars are fully autonomous, driving about with no occupants.
As I see it, Uber and Lyft have built systems that would be very useful for managing a fleet of self-driving cars to provide on-demand service, and one or both of them are likely to either buy such fleets, adapt their services slightly to be the middleman between such fleets and consumers, or be purchased at a premium price by the operators of such fleets once self-driving cars are viable.
Now, sure, driving for Uber and Lyft as a profit-making job is dead fairly quickly once self-driving cars become viable, but that doesn't mean Uber or Lyft is.
> AirBnB may end up being eaten by itself: as it becomes more viable economically, you'll see more purpose-built construction being built to be listed straight on AirBnB, and at some point it becomes worth it to ignore the consumer sellers entirely and just act as a broker between commercial property owners and travelers.
Again, that's not really a great threat to AirBnB in the absence of someone else whose built just as strong a relation with travelers and also has better connections with commercial property owners. But, most likely the transition of the suppliers offering via AirBnB from casual to commercial will be gradual -- and its already been happening from day one -- and AirBnB, as long as it maintains an advantage as the traveler destination, will be ideally positioned to continue that dominance as the property "sharing" market is less consumer sharing and more commercial rentals that are outsourcing much of the traveler-facing side of operations (and exploiting whatever rules are adopted for "property sharing" distinct from hotel operation.)
Wouldn't they just replace drivers with self-driving cars but maintain the rest of their infrastructure? It has already been announced that Uber is working to develop automatic cars. http://money.cnn.com/2015/02/03/technology/innovationnation/...
This though, is why concern one — the lack of access for retail investors — is arguably a firewall against this truly being a bubble.
This seemed to me one of the key necessary factors to the dotcom bubble and the housing bubble after it: online brokers allowed people who previously didn't have a lot of experience to buy stocks and even daytrade. (Count me in!)
Similarly, ARMs and the various other exotic mortgage tools opened up the housing market to lots of people who traditionally wouldn't have had access. (Thankfully learned my lesson with the NASDAQ bubble.)
If Uber at $20 billion is such a great deal, why don't Larry Ellison, Bill Gates or Warren Buffet buy it outright?
But if all the snapchats and instagrams--heck, even Facebook--come crashing to earth, it's not clear to me there's a huge amount of collateral damage outside of the companies directly involved and their (mostly non-retail) investors. Not zero of course. But a lot less than post-2000.
The opening paragraph creates an infallible criteria. It's true that many people thought instagram wasn't worth $1billion. Does that mean $35 billion is less indicative of a bubble, or more? Simply saying 'hah! Bubble predictions were wrong in 2012 because valuations are still rising, so they must be wrong now too.' This sort of thinking would never predict a bubble.
https://www.youtube.com/watch?v=IFe9wiDfb0E I hope they're wrong if it looks like this.
"much of the media has adopted Gurley as the apostle of the “here we go it’s 1999 all over again” mantra, but that was a valuation bubble. Companies simply weren’t worth what they were priced at. Gurley is arguing that the private market with its limited information and oversight is producing something very different: investors putting too much money in companies without enough information or enough potential upside to justify the risk."
To me "investors putting too much money in companies without enough information or enough potential upside to justify the risk" == valuation bubble.
(Projected Revenue * %Risk of Ruin) = Valuation
If you overestimate the projected revenues, or underestimate the risk , you're still arriving at the wrong valuation, and if investors are doing this systematically, we get a bubble.
The Swiss just auctioned 10 year debt at a negative yield.
So, no, it's not 1999.
Governments will collapse if interest rates ever return to normal, so they probably won't. But its interesting to see how cheap capital or "value" is when interest rates approach zero. If interest rates were 20% like 1980 and you needed 25% to get investors to even sniff, that would drop facebooks valuation from $200B to about $4B to maintain that 25% return. That's quite a haircut.
Low interest rates result in a margin-like whip when revenues drop. Say revenue dropped a billion at FB. That would drop profit by half and if interest rates remain constant, risk constant etc, that would collapse the price by half. And thats a less than 10% decline in revenue. Ouch. So one effect of low interest rates is making valuation/price very sensitive to small revenue changes. This will make things exciting.
"In short — and I’m not the first to say this — it’s less that valuations are unnaturally high than it is the fact that there is a completely new capital market — the growth market."
No, you're not the first to say this. Down through the ages it is usually phrased as follows: "this time is different."
I'm not yet convinced that we're in a bubble, but a few more articles like this and I will be.
(And as others have pointed out, the attempt to draw a distinction between a "risk bubble" and a "valuation" bubble is hand-waving nonsense.)
Can you elaborate on why? "If it bleeds it leads" and the potential of another bursting bubble is making the media wet themselves. And when the media starts getting orgasmic about something its only natural that bloggers are want to follow.
But them constantly writing about a bubble doesn't make it true any more than them constantly writing about Ebola wiping out civilization (at least that was the implication).
But it starts off with it's very worst argument, the ultimate '99 argument even: analysts suggesting Instagram's value increased 35-fold since acquisition based on the assumption that if it "fully monetized" it could contribute $2bn revenue (ie. at zero costs and zero discount rate you're still looking at a 17 year time horizon to get $35bn from Instagram, which is about three lifetimes for youth-oriented media properties) It suggests that's quite reasonable with reference to the stock price of yet-to-turn-a-profit Twitter.
It doesn't get any better when it suggests the "unicorns" are different because they're competing with non-tech-enabled businesses. That could have been a slide from the WebVan pitch deck. Plus it's very, very wrong in the case of AirBnB: Sabre et al sewed up a large chunk of the profitable end of the distribution market by solving the technical problems of filling hotel rooms, and locking themselves into the infrastructure, before the internet. AirBnB has a flair for consumer marketing, but does that really make it worth more?
The argument that the '99 companies failed because the mass of consumers didn't exist and the infrastructure wasn't ready is true, but for any self-respecting bear that's an indication of exactly why it could be worse than 99 when investors get cynical about companies peaking at hundreds of millions of users whilst still being unable to squeeze a respectable profit to justify their valuation.
So, all of us doing the hard and annoying work of building the companies are getting screwed.
Is that really a fact? Clicking through to that article and reading it (which I don't recommend) shows that that valuation is based on the whims of a group of analysts at Citigroup.
From the article:
“While Instagram is still early in monetizing its audience and data assets and its financial contribution to FB is minimal today, we believe that it is quickly gaining monetization traction and would contribute more than $2bn in high margin revenue at current user and engagement levels if fully monetized,” they wrote.
It's a bit ironic that the initial premise of the article is that commentators on the Apple/Microsoft battle of the 80's had their facts wrong.
Then computers showed up. Instead of worker productivity inching up slowly, it started multiplying. Your secretary didn't go from being able to answer 25 letters a day to 27, she went from being able to answer 25 letters a day to 150. No one knew how to deal with this. Keeping worker compensation in line with the value being created would require annual raises to get much larger. Companies would need fewer workers every year to reach the same levels of productivity. Entirely new products and services became possible all at the same time. Companies needed thinkers, not laborers. So many things changed so fast. And societies and economies don't really 'do' fast. 1980 was yesterday as far as social change is concerned. Analysts are still looking at companies and industries through lenses shaped by the Industrial Revolution - and most companies are operating in the same old ways too.
We haven't adapted to the computer age yet, and it will probably be a long time before we do. Until then, 'Are we crashing or soaring?' is probably going to be a constant topic of debate.
Whether businesses making use of emerging technologies and the internet are worth one million vs twenty billion seems to pale in comparison in the realm of economic balance and bubbles.
Visual chart for reference: http://xkcd.com/980/huge/
