
In Some Ways, It's Looking Like 1999 in the Stock Market - applecore
http://www.nytimes.com/2014/03/30/business/in-some-ways-its-looking-like-1999-in-the-stock-market.html
======
quaunaut
I really have a hard time understanding these arguments.

There are some good examples out there of difficult-to-understand buys and
misunderstood valuations- there's no way the WhatsApp purchase is ever going
to recoup its costs(the userbase is irrelevant, at a $1 per year price it just
isn't gonna happen, especially considering the WhatsApp founders claimed they
weren't going to be charging any more than that or for many other services
they wanted to provide, AND that they wouldn't have ads), King.com is just
this year's Zynga(news to the tech investment scene: The games industry is not
nearly as simple as you seem to think it is), and there's no shortage of
questionable investments in smaller companies, to be sure.

But then, you use examples like Airbnb and Oculus as an example of tech
industry madness?

"Airbnb is like a hotel chain without the hotels." Yeah. That means they
absolve themselves of costs, growth time, investment into that growth,
location issues, the works. They hacked the _concept_ of a hotel, and found
the holy grail for that market space. Frankly, if you think $10 billion is a
ridiculous number, with them being worth more than Hyatt- I'd be inclined to
wonder what holds them back being worth 3 Hyatts. They've got momentum,
they've got product, and they've got the community. Short of the possibility
of some grand competitor actually coming in and doing a bangup job, I think
Airbnb's potential is at least an order of magnitude higher than this.

And Oculus- so they have little revenue now? They have decent revenue _at all_
for a product that has only been released to developers. You even admit that
VR can completely change the world, but don't do the homework to understand
they're probably less than 2 years from a product release with _massive_
community and business support? What, did your deadline come up and you just
had to submit?

Look, it's fine if you think either are overvalued. But trying to use either
in your examples for how we're in a 1999-style bubble is laughable. You hand
us two of the best reasons we're not in a bubble and wonder why everyone
thinks we're not. Really now?

~~~
callmeed
I have about a 50% success rate with AirBnB when using it. At a hotel I know
what to expect and those expectations are met probably 90% of the time. I'm
not going to enter a room at the Hyatt and have my eyes start watering because
it smells so strongly of cat piss (actually happened). How can people argue
that AirBnB is anything but pretty CSS and some tech. efficiencies on top of
HomeAway/VRBO? It may be a _substitute for a hotel_ , but it is not Hyatt.

You also forgot to bring up all the regulatory hurdles AirBnB faces _in a
multitude of cities, counties, states, and countries_. I really don't
understand how investors are not calculating that into the risk and valuation
(maybe they are).

~~~
quaunaut
Honestly, I've been consistently let down by hotels, and so far only
incredibly impressed with AirBnB. They've consistently cost me only 80-90% the
local hotel rate, for twice the space, in-general-nicer accommodations, and a
couple times it even included homecooked meals that were nothing short of
unbelievable, just 'cause the owner was still staying there.

I also have a hard time believing that the cat urine thing happened- and that
if it did, that you didn't report them to AirBnB. That sounds to me like the
kind of thing they'd refund you(or more) for.

~~~
elmuchoprez
"...just 'cause the owner was still staying there."

Honestly, my favorite part of a hotel is not having to share a living space
with a stranger.

~~~
krisgee
Some people really like meeting strangers and especially travelling strangers.

~~~
lazerwalker
If staying in the home of interesting strangers is part of what appeals to you
about traveling, Couchsurfing lets you do it while paying _0%_ of local hotel
rates.

------
refurb
I don't think it's fair to lump the biotech firms in with the tech stocks.

Biotech firms are different for a few reasons. Biotech firms have a very long
lead time before getting FDA approval and can start making money. Therefore,
it shouldn't be unusual that they are showing a loss each year. You can't
create a MVP for a drug and starting selling it.

Second, the value of biotechs is firmly linked with IP. If the drug works, no
one else can sell it until the patent runs out (usually 8-10 years after FDA
approval). The valuations you see are not based on current revenue/profit, but
rather potential revenue/profit once approval happens. Tech companies don't
really have the benefit of IP that biotech companies have (someone can make an
AirBnB knock-off and there is nothing AirBnB can do about it).

That said, I think the biotech stocks are getting really high valuations
lately. There is a TON of risk in biotech stocks. If you're drug has bad side
effects, you might not get approval and future revenue = $0. Not quite the
same as tech stocks where you can still enter the market, you might not do as
well as you thought, but you still get some revenue.

~~~
waterlesscloud
Part of the issue with biotech is that it costs so much to fail. Companies
have to spend massive amounts of money just to find out an idea isn't going to
work.

~~~
refurb
I don't disagree. For the most part biotech investment outcomes are binary.
You either win or you lose (there are some exceptions).

And since it typically costs $5-10M just to be able to test your drug in the
first human, when biotechs fail, they fail hard.

------
tpeng
There's a big difference between the dot-com IPOs of the late 90s and the IPOs
of today: revenues. Some may express surprise that Candy Crush generated $1
billion of revenue, or that Facebook generates $8 billion / yr; and some may
not agree with the multiples assigned to these companies by the markets; but
neither of those thoughts makes the current environment comparable to 1999,
when pre-revenue companies with unworkable business plans IPO'ed at high
valuations. What I don't see in this article is any analysis of the growth
potential, long-term margins, and defensibility that these businesses possess.
That kind of analysis is crucial to a valuation discussion.

~~~
MichaelGG
>when pre-revenue companies with unworkable business plans IPO'ed at high
valuations.

Twitter? Or Splunk?

~~~
TheCoelacanth
Twitter had $422 million in revenue in the three quarter before its IPO.
Splunk had $121 million in revenue the year before its IPO.

Both were running at a loss, but they did both have a considerable amount of
revenue. That puts them way ahead of many of the companies from the dotcom
bubble since they at least have a proven way of bringing in money, even if it
isn't enough to fully cover their expenses.

~~~
MichaelGG
I apologize, that was a reading comprehension fail and I read pre-profit.

------
steven2012
If you think that today's stock market is like 1999, then you weren't around
to see the utter madness that was the stock market during the dot com days.

It was sheer insanity how crazy stocks were being bid up. Absolutely valueless
companies were bid up 10x by day traders. There was zero sense of
fundamentals, and fraud was rampant everywhere. The company I worked for went
bankrupt due to financial fraud and many of my coworkers lost hundreds of
thousands to millions of dollars.

Right now, we have essentially 2 companies, Google and Facebook, that are
throwing billions upon billions of dollars worth of shareholder money to
seemingly stupid ideas. And while I'm sure there's still plenty of fraud, you
don't have anywhere near the same level of fraud as you did back during the
dotcom days. I truly do believe that most companies and more especially CEOs
are a lot more cognizant that they will go to jail for financial fraud if they
step over the line, so they are a lot cleaner than they were 15 years ago, for
the most part.

------
jweir
The article makes no mention of quantitative easing. I think that has a bit of
an effect of the stock market I general, not just tech IPOs.

So, I don't think this market is anything like 1999, this is very different.

~~~
leoc
Weren't there similar, though less dramatic circumstances in 1999 too though?
ISTR that Alan Greenspan lowered interest rates in order to help fight the
LTCM fire.

~~~
mikecb
That was in 1997 though. As was the Asian crash and Russia default (which
partly caused LTCM), so there are plenty of other reasons for the Fed action.

------
scrollaway
Good article but the bit about Oculus VR was way out of place.

You're going to put Candy Crush, a mobile match-three game valued at $7B, with
a company producing top of the line VR hardware and legends of the 3d industry
on its staff that sold for $2B?

------
capkutay
It depends how you look at it. If you're comparing 2 line charts, tech stocks
in 1999 versus now with no other contextual information, then yes it looks
like 1999. Otherwise, the new wave of tech companies are leaders in highly
competitive markets and have some significant revenue stats to prove it.

I would only start to get worried if a company like Box had a wildly
successful IPO with ~$160m in losses, technology thats relatively easy to
make, and lots of competition coming from the industry giants. That would seem
bubbly to me.

------
ritwikt
AirBnB and Oculus create value one by disruption and the other by innovation
... They are better left off from King lane which is more ephemeral ..

'99 was more of a tide where everything rose - look @ how King got punished in
the market, would that have happened in '99?

------
kqr2
OT: is there a good HN like forum for discussing finance?

Old timers will remember newmogul.com, however, that's defunct.

~~~
coldcode
The problem with finance related discussion forums is they wind up being used
to generate fake information to try to drive pump and dump stocks. It's hard
to keep them clean.

------
richardlblair
The thing that should scare you all, is that this article isn't wrong. If you
argue that it is wrong, than I'm sorry, but you aren't seeing things clearly
and this is going to hurt you most.

If you are making a good wage in this industry, put some away for when shit
hits the fan. It's not a matter of if, it's a matter of when. Be prepared,
friends, because shit is going to go down.

------
paulbaumgart
I think the key point they're missing is that most tech goes through a "hype
cycle" of unreasonable expectations followed by a crash followed by slow,
steady, solid growth[0]. That's the same trend at play here: it's not that the
dotcom-bubble ideas were categorically idiotic, it's just that many were
premature and overhyped. Now, a lot of those ideas are being done right, and
people with a weak grasp on the underlying tech can't tell the difference.

0\.
[http://en.wikipedia.org/wiki/Hype_cycle](http://en.wikipedia.org/wiki/Hype_cycle)

------
MisterMashable
During the 90s internet stocks were doubling or tripling in a matter of days.
That isn't happening now. This market is very frothy but this most certainly
isn't 99. That said, the market can go anywhere. The market could be topping
right now and on it's way to DOW 5000, or it could be taking a break then go
merrily on it's way to DOW 35,000. It doesn't matter what Schiff says, it
doesn't matter what the cheerleaders say. The market will do its own thing.

------
jipy9
You'll may have seen this, since this is a bit old now. But, the quality,
lucidity, and accessibility of this piece makes it worth another read.

Aswath Damodaran, NYU Stern Professor of Finance has a great piece here on
Whatsapp pricing - [http://aswathdamodaran.blogspot.in/2014/02/facebook-buys-
wha...](http://aswathdamodaran.blogspot.in/2014/02/facebook-buys-whatsapp-
for-19-billion.html)

------
Tycho
First, investment pours into companies with users and revenue.

The next stage it's companies with users but no revenue.

The final stage is companies with no revenue and no users.

It's the Minsky-moment updated for the internet age. (first people take out
loans they can afford to pay back; then loans where they can only afford to
pay the interest; then finally people start taking out loans where they can
afford neither the interest nor the principal payments)

~~~
friendcomputer
Its worth pointing out that due to Sarbanes-Oxley, some of this will not
happen on the stock market this time. So if you are just looking at P/E of
publicly traded stocks you are going to miss the signs.

------
owensims1
He did a good job of negating the entire first half of the article by showing
that P/E ratios are totally reasonable, especially compared to 1999.

~~~
gone35
Well while it is clear the P/E ratios today are on average much lower than
during the dot-com bubble, they are still high enough in some cases to warrant
taking a closer look at whether they are 'reasonable', I think.

For instance although King.com has a P/E ratio at launch of around 10 and many
other top stocks like Google and Apple have P/Es below 30, Facebook currently
has an estimated P/E ratio (ttm) of 101.7 [1]; Netflix, Amazon and LinkedIn
clock in at 213, 612 and 941 as of last February; and Twitter has a _negative_
P/E ratio of -10 or so, having lost $645 million in 2013 [2]. Not a clear
picture by any means, but it is fair to ask if all these valuations are
reasonable.

[1]
[http://www.bloomberg.com/quote/FB:US](http://www.bloomberg.com/quote/FB:US)

[2]
[http://www.newyorker.com/online/blogs/johncassidy/2014/02/wh...](http://www.newyorker.com/online/blogs/johncassidy/2014/02/which-
internet-stock-is-the-most-overvalued.html)

------
matco11
The reference to the AirBnB valuation is completely misplaced: The best rated
hotel chains don't own the real estate. Furthermore the ubiquitous coverage
that AirBnB offers is unmatched by any hotel chain.

The current valuations reflect the perfectioning of business models and
practices since the nineties. Everybody has learned a lot since.

It's not like 1999. This feels more like 1998.

~~~
TheCoelacanth
AirBnB only targets one of the major segments of hotel business. AirBnB almost
exclusively focuses on the consumer market. Hyatt, the example from the
article, focuses primarily on other segments, business travelers and meetings
and groups.

AirBnB has the potential to take away most of the consumer segment, but they
don't have much appeal to most of Hyatt's customers.

------
subdane
Relevant quote, "The point is that even if prices are high in the overall
market, they are being backed up by earnings to a much larger extent than in
2000. That’s important, because back then, when the dot-com bubble burst, the
downdraft brought most companies down with it."

------
adventured
In some ways it's far worse than 1999. The Russell 2000 has a 75 pe ratio (a
year ago it was 35).

~~~
paulbaumgart
P/E is a useless metric for high-growth industries.

~~~
adventured
I wasn't aware that all the companies in the Russell 2000 were high growth. I
was under the impression they're small caps, which has nothing to do with
growth rate.

A doubling of the PE over the course of one year is not a useless metric in
fact. It means you're paying twice an already extreme price for the growth you
get, compared to last year.

~~~
paulbaumgart
Companies that have a strong vision for how to turn their cash into growth
should not have profits.

------
mpg33
I think it's important to distinguish between general stock market and tech
stocks.

------
thro2
bogus article, best accompanying photo ever.

------
encoderer
...But in most ways it's not.

------
notastartup

        Markets can remain irrational longer than you can remain solvent.

------
cookrn
It's a small nitpick about the article, but I found it hard to continue
reading when the author called WhatsApp "a social media company with modest
sales".

------
EGreg
Whenever people criticize the market valuations, shouldn't Laissez Faire
advocates say, "the market is always right?" There is something they don't
know.

------
acd
Economist believe in the free market as long as its not the price of new money
ie the interest rate. Then most economists believe in that a central planned
system is better via central banks. That is strange to promote that the free
market is best in one way but not pricing another goods.

I think that central banks manipulation of the interest rates are creating the
boom and bust cycles. Like Hayek and Austrian economics. When the price of new
money is wrong it will be wrongly allocated which in turn creates economic
bubbles.

~~~
voodoomagicman
The thing is there is not a clear way to have a market control the creation of
new money - the choice is between central control of the money supply and a
fixed money supply.

~~~
Tycho
I wouldn't say that - private banks create new money whenever they issue loans
(ie. all the time).

