The Tech Industry Is in Denial, but the Bubble Is About to Burst(techcrunch.com)
techcrunch.com
The Tech Industry Is in Denial, but the Bubble Is About to Burst
http://techcrunch.com/2015/06/26/the-tech-industry-is-in-denial-but-the-bubble-is-about-to-burst
16 comments
If there is one let it pop.
https://www.quora.com/If-the-tech-bubble-were-to-pop-today-l...
The people who care about building great tech companies and products will stay and the posers just looking for a gold rush will leave. Good riddance.
This conversation isnt even interesting anymore because thanks to the original bubble and the hassle of going public due to sarbanes oxley among other things only private money where people can take the hit is at stake.
Can we please talk about something else?
https://www.quora.com/If-the-tech-bubble-were-to-pop-today-l...
The people who care about building great tech companies and products will stay and the posers just looking for a gold rush will leave. Good riddance.
This conversation isnt even interesting anymore because thanks to the original bubble and the hassle of going public due to sarbanes oxley among other things only private money where people can take the hit is at stake.
Can we please talk about something else?
> only private money where people can take the hit is at stake.
That's not true. If the bubble busts a lot of people in the Bay Area will suffer, tech workers or not. We saw it happen in 2000 and again in 2003. Lots of small businesses closed, property values plummeted, etc.
That's not true. If the bubble busts a lot of people in the Bay Area will suffer, tech workers or not. We saw it happen in 2000 and again in 2003. Lots of small businesses closed, property values plummeted, etc.
Oh no, not plummeting property values in Silicon Valley!?!?! If that happens it will only be impossible for me to buy a home here instead of super-impossible
You may not care, but for everyone who has already taken the plunge and has a large part of their net worth tied up in their house, they might care. Especially if they have a mortgage that will then be underwater.
How many layoffs will Starbucks have to make?
I don't know. I also don't find this a compelling argument in favor of maintaining absurd valuations
It's not about absurd valuations at all, and that you appear to think it is neatly epitomizes the self-absorbed myopia of the Silly Valley tech scene.
How many non-tech people's lives are going to be adversely — and far more adversely than the tech people, at that — impacted by a hypothetical tech bubble popping? (Note the lack of assertion that we're in a bubble; that's not the point I'm here to discuss, and I have no horse in that race. I just think the notion of the fallout of a bubble bursting being limited to tech people and private money is not merely ludicrous, but offensive.)
But they can't code, so why should we care about them, right?
How many non-tech people's lives are going to be adversely — and far more adversely than the tech people, at that — impacted by a hypothetical tech bubble popping? (Note the lack of assertion that we're in a bubble; that's not the point I'm here to discuss, and I have no horse in that race. I just think the notion of the fallout of a bubble bursting being limited to tech people and private money is not merely ludicrous, but offensive.)
But they can't code, so why should we care about them, right?
I didn't say it's a reason to keep the bubble going, I was just saying that more than just the rich people in private equity would be affected by it.
Yes, when a bubble pops surrounding industries are affected. That doesn't mean it perpetuate.
I didn't say we should perpetuate it. I was only pointing out that saying only rich people in private equity would suffer was wrong.
It's obviously a bubble. How are people not seeing this? Thanks to the current economic climate investors are literally throwing money at startups with no real business plan or income. Valuations have no correlation with reality, but the best indicator imho is that the people investing now don't really understand the companies/markets they're investing in.
Ignorance + Overvaluation + Greed = Artificial Evaluations. This leads to a vicious cycle which eventually leads to a bubble.
It amazes me that the 20 somethings who work in silicon valley and are supposed to be so smart don't have an iota of common sense and are so blind to the obvious.
Ignorance + Overvaluation + Greed = Artificial Evaluations. This leads to a vicious cycle which eventually leads to a bubble.
It amazes me that the 20 somethings who work in silicon valley and are supposed to be so smart don't have an iota of common sense and are so blind to the obvious.
I don't think there's anything off about people having vested interests in what they're saying. Look at it the other way and it's just putting their money where their mouth is.
I think what's he's getting at is that the people who are claiming there is no bubble are not credible, because they want nobody to think there is a bubble.
My own experience tells me there's a bubble. It's been at least 3 years since i've worked at a profitable company... yet my salary has just under doubled in that period of time. I now work in a coworking space with a bunch of other start-ups. The space is exploding! They sell the space almost as fast as they make the space.
It FEELS like a bubble. The company I work for today has 2 years of runway, during the day i'm doing everything I can to make that longer. When the check comes in, i'm putting as much into savings as possible.
If it bursts, and i'm caught in it. I think i'll try selling small things I make in my basement woodshop :D
It FEELS like a bubble. The company I work for today has 2 years of runway, during the day i'm doing everything I can to make that longer. When the check comes in, i'm putting as much into savings as possible.
If it bursts, and i'm caught in it. I think i'll try selling small things I make in my basement woodshop :D
Have we reached peak, "We are in a bubble" articles? That is... are we at the, Bubble of Bubble Articles?
I mean we can only sustain so many articles about the talk of tech bubbles before it all comes crashing down. What happens when readers decide not to read bubble articles?
I mean we can only sustain so many articles about the talk of tech bubbles before it all comes crashing down. What happens when readers decide not to read bubble articles?
You sparked my imagination and I looked at google trends between "dot-com", "dead unicorn", "tech bubble".
https://www.google.com/trends/explore#q=dot-com%2C%20tech%20...
https://www.google.com/trends/explore#q=dot-com%2C%20tech%20...
They quote Shiller as saying that we're in a bubble, but then they conveniently leave out another quote:
> But I'm not sure that the current situation is a classic bubble because I'm not certain that most people have extravagant expectations.
Not to mention that Shiller scarcely mentions the tech industry. When he's asked what asset class is the most overvalued, he points to bonds.
> But I'm not sure that the current situation is a classic bubble because I'm not certain that most people have extravagant expectations.
Not to mention that Shiller scarcely mentions the tech industry. When he's asked what asset class is the most overvalued, he points to bonds.
Let's assume that the premise is correct, that we are in a bubble. Let's further assume that you work in the tech industry. Maybe you even live in Silicon Valley.
How do you protect yourself if you know the bubble is coming? If your livelihood, property value and possible most of your net worth is tied up in tech (through say stock options)?
How do you protect yourself if you know the bubble is coming? If your livelihood, property value and possible most of your net worth is tied up in tech (through say stock options)?
Since I work in tech, I've been acting like one is inevitable. Saving a little more, spending less. Fixing up my house in case I have to sell it. Having my resume up to date and networking with recruiters instead of just blowing them off. You could also invest in funds that short the market, but I don't recommend that unless you know what you're doing.
The keyword is always the same, regardless if it's in technology or in any other industry: diversify your investments.
That's great for rich people, but what if I can only afford one house and have just one job with stock options that aren't sellable yet?
I'm genuinely curious, how are people diversifying?
I'm genuinely curious, how are people diversifying?
In this case you have two options.
1) Hope that the bubble will burst far ahead in the future to give you enough time to diversify.
2) Double-down with the resources you have, but this involves risk. You have different options here, depending on your resources and the risk that you can afford. You could sell your current property, buy two more for less money, renovate them, sell them after 2/3 months making a profit. Invest the profit, repeat, etc.
When making investments you need to count on the resources that you have now, and find ways to move your wealth around and create profit in the process.
1) Hope that the bubble will burst far ahead in the future to give you enough time to diversify.
2) Double-down with the resources you have, but this involves risk. You have different options here, depending on your resources and the risk that you can afford. You could sell your current property, buy two more for less money, renovate them, sell them after 2/3 months making a profit. Invest the profit, repeat, etc.
When making investments you need to count on the resources that you have now, and find ways to move your wealth around and create profit in the process.
I don't understand why does it inherently matter.
Companies and founders know what it the state of their business, and every founder knows if they raised money at a higher or unfair valuation. Investors are just riding the horse, and they know what they are doing. Companies come and go, and the free-market determines their valuation. If they gotta fail, let 'em fail. If they gotta succeed, let them succeed. If the valuations are pumped up but eventually somebody is willing to acquire these companies, let them do it. It's a risk/reward game.
It's not like founders and investors are passively suffering the up and downs of the market. They are the market! Everybody knows what they are doing. Last but not least, high volatility in a market generates opportunities, regardless if it's a boom, or a bubble burst.
Companies and founders know what it the state of their business, and every founder knows if they raised money at a higher or unfair valuation. Investors are just riding the horse, and they know what they are doing. Companies come and go, and the free-market determines their valuation. If they gotta fail, let 'em fail. If they gotta succeed, let them succeed. If the valuations are pumped up but eventually somebody is willing to acquire these companies, let them do it. It's a risk/reward game.
It's not like founders and investors are passively suffering the up and downs of the market. They are the market! Everybody knows what they are doing. Last but not least, high volatility in a market generates opportunities, regardless if it's a boom, or a bubble burst.
I guess it's that time of the weekly press cycle again.
Aswath Damodaran doesn't think so:
http://aswathdamodaran.blogspot.com/2015/03/illiquidity-and-...
Unlike the 1990s, the market capitalization of technology companies in 2014 is backed up by operating numbers that are commensurate with value.
Unlike the 1990s, when tech companies climbed from single digits in 1990 to almost 30% of the overall market capitalization by the end of 1999, tech stocks collectively have stayed at about 20% of the overall market.
Unlike the 1990s, the market capitalization of technology companies in 2014 is backed up by operating numbers that are commensurate with value.
Unlike the 1990s, when tech companies climbed from single digits in 1990 to almost 30% of the overall market capitalization by the end of 1999, tech stocks collectively have stayed at about 20% of the overall market.
The excesses today are more like 2005-2007, right before the great recession, than they are akin to 1999-2000.
There are significant isolated pockets of extreme overvaluation in tech. It's nothing like the broad, mainstream 1999 bubble however.
For example, recently Facebook's PE ratio was around 85. That's comparable to how extreme Microsoft and Cisco were valued during the height of the dotcom bubble.
Netflix has a ~150 PE being generous on their net income potential. That's a $40 billion market cap, that should be a lot closer to $15 billion based on their actual sales growth (which is not that impressive) and net income growth potential.
Twitter is extraordinarily overvalued. Likely by 200%.
LinkedIn has never demonstrated the capacity to generate good net income. Until they started losing money again, they were carrying an N hundred PE ratio. Their growth has slowed considerably, and will continue to. They're worth maybe 1/3 where they're trading at today, when the music stops.
The enterprise SaS sector is hyper overvalued. Workday, Splunk, Palo Alto Networks, Salesforce, FireEye, etc. are all sporting dotcom bubble style valuations. Yes they have sales, and not one of them comes even remotely close to justifying their valuations based on either growth or sales (profits are out, because none of them have any).
What's going to happen when this party ends - as all parties must - is valuations will get chopped drastically, at least in half for the average high-valuation tech company.
There are significant isolated pockets of extreme overvaluation in tech. It's nothing like the broad, mainstream 1999 bubble however.
For example, recently Facebook's PE ratio was around 85. That's comparable to how extreme Microsoft and Cisco were valued during the height of the dotcom bubble.
Netflix has a ~150 PE being generous on their net income potential. That's a $40 billion market cap, that should be a lot closer to $15 billion based on their actual sales growth (which is not that impressive) and net income growth potential.
Twitter is extraordinarily overvalued. Likely by 200%.
LinkedIn has never demonstrated the capacity to generate good net income. Until they started losing money again, they were carrying an N hundred PE ratio. Their growth has slowed considerably, and will continue to. They're worth maybe 1/3 where they're trading at today, when the music stops.
The enterprise SaS sector is hyper overvalued. Workday, Splunk, Palo Alto Networks, Salesforce, FireEye, etc. are all sporting dotcom bubble style valuations. Yes they have sales, and not one of them comes even remotely close to justifying their valuations based on either growth or sales (profits are out, because none of them have any).
What's going to happen when this party ends - as all parties must - is valuations will get chopped drastically, at least in half for the average high-valuation tech company.
While I think the bubble talk is ridiculous clickbait at this point, I would caution on using this logic as a reason why there isn't a bubble. Sarbanes-Oxley had a major impact on the way tech companies get funded such that I'm not sure how much signal is contained in tech company stocks today vice 1999 when the IPO was the standard "exit".
Don't waste your time. This article is pretty typical fire-and-brimstone garbage that shows up during hot markets based on essentially no stats other than some stuff about unicorns, which is very few companies.
Wake me up when Sam Altman finds a taker for his wager: http://blog.samaltman.com/bubble-talk
I'm not convinced the terms of the bet do or do not prove there's a bubble, however he did find a taker: http://money.cnn.com/2015/03/30/technology/sam-altman-tech-s...
There's a relevant HN thread:
https://news.ycombinator.com/item?id=9271679
https://news.ycombinator.com/item?id=9271679
Because the winner gets nothing, and the loser loses $100,000 dollars.
01/07/2007: Bubble, Bubble, Bubble: http://techcrunch.com/2007/01/07/bubble-bubble-bubble/
12/06/2010: Can It Be A Huge Bubble If Only A Few People Are Blowing It?: http://techcrunch.com/2010/12/06/bubble-2/
03/01/2011: Angel-Turned-VC Mike Maples: Yes, There’s a Bubble: http://techcrunch.com/2011/03/01/angel-turned-vc-mike-maples...
04/24/2011: We're In The Middle Of A Terrible Blubble!: http://techcrunch.com/2011/04/24/were-in-the-middle-of-a-ter...
06/22/2011: On Bubbles … And Why it Will All be Fine: http://techcrunch.com/2011/06/22/on-bubbles-and-why-it-will-...
07/15/2011: The Endless Bubble Debate: Kedrosky Vs. Wadhwa: http://techcrunch.com/2011/07/15/bubble-debate-kedrosky-wadh...
08/09/2011: Good News! The Bubble that Never Inflated Has Popped: http://techcrunch.com/2011/08/09/good-news-the-bubble-that-n...
12/10/2011: Double Hubble Bubble Trouble: http://techcrunch.com/2011/12/10/double-bubble-toil-trouble/
06/08/2012: It’s Not A Bursting Bubble. It’s a Correction And It Will Take Awhile.: http://techcrunch.com/2012/06/08/its-not-a-bursting-bubble-i...
04/22/2014: David Einhorn Just Cried Bubble And Let Slip The Shorts Of War: http://techcrunch.com/2014/04/22/david-einhorn-just-cried-bu...
06/27/2014: VCs Don’t Think We’re In A Tech Bubble — Yet: http://techcrunch.com/2014/06/27/vcs-dont-think-were-in-a-te...
09/05/2014: It’s Time For VCs To Run To Their Bubble Bunkers: http://techcrunch.com/2014/09/05/its-time-for-vcs-to-run-to-...
09/22/2014: When The Funding Bubble Bursts It Doesn’t Have To Mean Disaster: http://techcrunch.com/2014/09/22/when-the-funding-bubble-bur...
11/09/2014: The MBAs Are Fleeing, Should SF Be Worried?: http://techcrunch.com/2014/11/09/the-mbas-are-fleeing-should...
01/26/2015: The seed bubble has popped: http://techcrunch.com/2015/01/16/the-seed-bubble-has-popped/
03/21/2015: No Need For Alarm Over Private Company Valuations: http://techcrunch.com/2015/03/21/no-need-for-alarm-over-priv...
03/24/2015: Tech Bubble? Maybe, Maybe Not: http://techcrunch.com/2015/03/24/tech-bubble-maybe-maybe-not...
04/07/2015: The Potential Upside To A Technology Bubble: http://techcrunch.com/2015/04/07/the-potential-upside-to-a-t...
05/07/2015: Building A Moat In A Bubble: Navigating Today’s Financing Environment: http://techcrunch.com/2015/05/07/build-a-moat/
05/24/2015: Who Will Be Hurt Most When The Tech Bubble Bursts? Not VCs: http://techcrunch.com/2015/05/24/who-will-be-hurt-most-when-...
--
That's an incomplete list. I got bored after a while. I wonder what the term is for a bubble that takes 8+ years to "pop"?
12/06/2010: Can It Be A Huge Bubble If Only A Few People Are Blowing It?: http://techcrunch.com/2010/12/06/bubble-2/
03/01/2011: Angel-Turned-VC Mike Maples: Yes, There’s a Bubble: http://techcrunch.com/2011/03/01/angel-turned-vc-mike-maples...
04/24/2011: We're In The Middle Of A Terrible Blubble!: http://techcrunch.com/2011/04/24/were-in-the-middle-of-a-ter...
06/22/2011: On Bubbles … And Why it Will All be Fine: http://techcrunch.com/2011/06/22/on-bubbles-and-why-it-will-...
07/15/2011: The Endless Bubble Debate: Kedrosky Vs. Wadhwa: http://techcrunch.com/2011/07/15/bubble-debate-kedrosky-wadh...
08/09/2011: Good News! The Bubble that Never Inflated Has Popped: http://techcrunch.com/2011/08/09/good-news-the-bubble-that-n...
12/10/2011: Double Hubble Bubble Trouble: http://techcrunch.com/2011/12/10/double-bubble-toil-trouble/
06/08/2012: It’s Not A Bursting Bubble. It’s a Correction And It Will Take Awhile.: http://techcrunch.com/2012/06/08/its-not-a-bursting-bubble-i...
04/22/2014: David Einhorn Just Cried Bubble And Let Slip The Shorts Of War: http://techcrunch.com/2014/04/22/david-einhorn-just-cried-bu...
06/27/2014: VCs Don’t Think We’re In A Tech Bubble — Yet: http://techcrunch.com/2014/06/27/vcs-dont-think-were-in-a-te...
09/05/2014: It’s Time For VCs To Run To Their Bubble Bunkers: http://techcrunch.com/2014/09/05/its-time-for-vcs-to-run-to-...
09/22/2014: When The Funding Bubble Bursts It Doesn’t Have To Mean Disaster: http://techcrunch.com/2014/09/22/when-the-funding-bubble-bur...
11/09/2014: The MBAs Are Fleeing, Should SF Be Worried?: http://techcrunch.com/2014/11/09/the-mbas-are-fleeing-should...
01/26/2015: The seed bubble has popped: http://techcrunch.com/2015/01/16/the-seed-bubble-has-popped/
03/21/2015: No Need For Alarm Over Private Company Valuations: http://techcrunch.com/2015/03/21/no-need-for-alarm-over-priv...
03/24/2015: Tech Bubble? Maybe, Maybe Not: http://techcrunch.com/2015/03/24/tech-bubble-maybe-maybe-not...
04/07/2015: The Potential Upside To A Technology Bubble: http://techcrunch.com/2015/04/07/the-potential-upside-to-a-t...
05/07/2015: Building A Moat In A Bubble: Navigating Today’s Financing Environment: http://techcrunch.com/2015/05/07/build-a-moat/
05/24/2015: Who Will Be Hurt Most When The Tech Bubble Bursts? Not VCs: http://techcrunch.com/2015/05/24/who-will-be-hurt-most-when-...
--
That's an incomplete list. I got bored after a while. I wonder what the term is for a bubble that takes 8+ years to "pop"?
During the housing bubble years, there were bubble articles as early as 2004, although it didn't truly pop until 2008. I remember I would sometimes frequent housing bubble blogs in 2005-2006, and there you would find a lot of vitriolic pushback especially from those in the real estate industry. Also, early on the blogs themselves would constantly complain how the 'MSM' was ignoring the bubble. It wasn't until 2007 that the word 'bubble' caught on everywhere.
Based on the chronology of those articles you mention the bubble talk has ramped up considerably in 2015, making me wonder if we are close to a pop.
Based on the chronology of those articles you mention the bubble talk has ramped up considerably in 2015, making me wonder if we are close to a pop.
The chronology of the articles I listed is probably more closely related to Google's bias towards more recent search results coupled with TechCrunch's expansion ever since its sale to AOL in 2010. I'm disinclined to put the time into a more rigorous analysis, but I doubt there's much that can be implied just from a change in the number of articles I found over time.
I think there are enough fundamental differences between the housing bubble and a potential tech bubble -- if there is one, which I have no opinion on -- that it's not very helpful to compare the two. Housing prices were driven by cheap credit becoming available to a middle class that wanted to improve its financial position by buying homes as investment properties. That's pretty unlike what's happening here, if in fact anything really is happening at all.
I think there are enough fundamental differences between the housing bubble and a potential tech bubble -- if there is one, which I have no opinion on -- that it's not very helpful to compare the two. Housing prices were driven by cheap credit becoming available to a middle class that wanted to improve its financial position by buying homes as investment properties. That's pretty unlike what's happening here, if in fact anything really is happening at all.
I can tell you from my own observation that these "tech bubble" articles are becoming more and more frequent. TechCrunch, Bloomberg, BI, others. Correlation, perhaps, but something to consider.
To your second point - on the surface these two "bubbles" would appear different, but dig deeper and they are fundamentally more similar. With the housing bubble it was fueled on the backend by foreign and institutional investors buying up MBS (mortgage backed securities) like mad, causing the frontend (banks and lenders) to issue credit to anyone with a pulse (and some without as I've heard dead people got approved also). Similarly with the tech bubble, hedge fund investors and others are jumping into the foray joining VCs and making deals at sky high valuations. To me, the willingness of investors to take smaller stakes in companies for more cash amounts to "cheap credit".
Bottom line, if there is a bubble, what will happen is funding will dry up, and any startups trying to raise capital will be out of luck. Even the so called unicorns will be under pressure to turn a profit once they realize they have nowhere to turn for more capital. The end result will be mass layoffs and a glut of out of work tech workers. Believe me this is the last thing I want, being a software engineer myself. But I already went through it once in 2001-2002, so I figure better be somewhat prepared than deny a bubble even exists.
To your second point - on the surface these two "bubbles" would appear different, but dig deeper and they are fundamentally more similar. With the housing bubble it was fueled on the backend by foreign and institutional investors buying up MBS (mortgage backed securities) like mad, causing the frontend (banks and lenders) to issue credit to anyone with a pulse (and some without as I've heard dead people got approved also). Similarly with the tech bubble, hedge fund investors and others are jumping into the foray joining VCs and making deals at sky high valuations. To me, the willingness of investors to take smaller stakes in companies for more cash amounts to "cheap credit".
Bottom line, if there is a bubble, what will happen is funding will dry up, and any startups trying to raise capital will be out of luck. Even the so called unicorns will be under pressure to turn a profit once they realize they have nowhere to turn for more capital. The end result will be mass layoffs and a glut of out of work tech workers. Believe me this is the last thing I want, being a software engineer myself. But I already went through it once in 2001-2002, so I figure better be somewhat prepared than deny a bubble even exists.
As John Maynard Keynes said: "The market can stay irrational longer than you can stay solvent."
It's usually easier to recognize a bubble than to predict when it will burst.
It's usually easier to recognize a bubble than to predict when it will burst.
And if and when there is a bubble and burst, Techcrunch (and every silly tech blog) claims they predicted the Bubble Burst for next 20 years.
Orwell coined the term duckspeak to describe the quacking sounds made by people without original thoughts.
What's with the gap between 207 and 2010? ;)
That's worthy of blog post.
I'm by no means an expert on this, however, I do think there are "unicorns" but I don't think these unicorns constitute the tech sector. I don't think there is a bubble as we had during the dot-com, a lot (if not most) of the tech companies today are very mature businesses. If there was something about to "pop", my guess would be, it would be the unicorns.
I think a better question to ask from all these 'bubble' articles is not whether there is a bubble, but whether the bubble will pop suddenly and dramatically, or slowly let out air?
"Meanwhile, Noble Prize-winning economist Robert Shiller". He must be a really great guy, winning a noble prize and all...
[deleted]
"the tech industry is in denial about being in a bubble. Here's an article with prominent people from the tech industry saying we're in a bubble."
This is pure clickbait shit.
This is pure clickbait shit.
Oh yay another techcrunch bs article. When is HN going to ban tc?
I think that might indicate no one really knows. If it makes a difference to your prospects make sure you have a strategy for dealing with it bursting and a strategy for it not bursting. Don't pick a side.