
Tech Stocks Roar Again in Faint Echo of 2000 - SREinSF
https://www.wsj.com/articles/tech-stocks-roar-again-in-faint-echo-of-2000-1509143296
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cletus
I roll my eyes as these tortured attempts to draw parallels that aren't even
superficially similar.

2000 was an IPO bubble of companies that had no revenue, no prospect of
revenue and no business plan. Analysts went out of their way to justify
valuations by inventing new metrics like revenue-to-price multipliers.

What's different today is that the likes of Apple, Google, Microsoft, Facebook
and Amazon are money-making machines on a scale probably not matched since at
least the era of Standard Oil, the 19th century railroad tycoons and other
industrialists like Carnegie.

I mean, Apple is trading at a P/E of less than 19 and it has a market cap of
$842B. That is mind-boggling but not at all outrageous.

In 2000 the tech IPO bubble burst. In 2007 the subprime disaster came crashing
down. It is absolutely certain there will be another downturn in the future
but at this point I have no idea what the next trigger will be.

My best guess is something to do with China. This could take many forms. Some
think that the Chinese economy is a house of cards. There has clearly been a
flight of capital from China. Who knows where this ends? Also, Chinese money
in particular has been flooding into Western real estate markets. This too may
come to a head.

Or it could be something to do with North Korea or even Iran.

Or populists movements may drive Western governments to crack down on what
they see as excessive power by the large tech companies, particularly in the
EU.

Or a constitutional crisis instigated by our current lunatic-in-chief.

Whatever the case I really don't see any significant parallels to 2000.

~~~
adventured
> 2000 was an IPO bubble of companies that had no revenue, no prospect of
> revenue and no business plan.

That's half myth. Most of the Nasdaq's value inflation was from companies with
substantial revenue, not a thousand DrKoop.com or Pets.com companies.

Just the overvaluation by Microsoft, Cisco, Oracle, Sun, Nortel, Lucent,
Intel, AOL, Yahoo ($1.5 to $2 trillion in overvaluation) - was more than what
all the dotcom IPO companies were worth combined.

Most of the largest tech market cap companies of 2000 had real revenue.

Microsoft was sporting a ~50-65 PE ratio in 1999/2000.

AOL was commonly trading for 150 to 200 times earnings, with $8 billion in
annualized revenue and over a billion in annualized profit, growing at 100%
year over year circa mid 2000.

Cisco was solidly profitable, had $16-$20 billion in annualized revenue and
was growing extremely fast. It produced the single largest market cap in
history up to that point.

Oracle was commonly trading at 100 times earnings.

Just the Cisco _overvaluation_ alone, at $450 billion give or take, was worth
more than most of the zero revenue style dotcom companies combined (companies
like Geocities, TheGlobe, etc).

There is once again trillions of dollars in overvaluation among today's
largest tech companies. You can easily see that when you look at how they've
inflated based on the market moving rather than earnings the last three or
four years. For example, Microsoft's valuation tripled over five years on the
back of between zero and very little earnings growth.

Appraise Amazon's valuation based on income. Good luck.

Netflix? 150-200 PE ratio has been typical.

Activision is worth $50 billion, trading at 45-50 times earnings, with typical
7%-10% style income growth.

Cisco's valuation has nearly doubled in five years, despite very little income
or business growth.

Alibaba is trading for 50-60 times earnings.

Salesforce.com is trading for... oh geez, 400 times last fiscal year's
earnings, and a lot more than that based on the last four quarters.

Oracle's stock is up by about 1/3 in the last year, while its business can't
get beyond where it was in 2015.

VMWare has a ~43 PE ratio, and is lucky if they can generate 10% growth at
this point.

Intel has doubled in five years, with minimum income growth.

nVidia is trading for 60 times earnings. Sales might grow 15%-20% in the
coming year, which caps what their earnings growth is likely to do as well.

Tesla's valuation? Ha.

Twitter & Snapchat, ~$35 billion in combined market value, neither have ever
earned a profit.

Workday has never earned a profit. $22 billion valuation. In fact their losses
just keep growing by the year, over 25% of revenue equivalent for their last
fiscal year at $400 million in negative net income. Revenue nearly doubled,
losses nearly doubled, versus 2015. This is a company that loses between 1/2
and 2/3 of its market cap in the next downturn as they're forced to slash the
bleed out of desperation and the juiced growth implodes with it.

AMD, the poster child for showing up during market bubbles, has an $11 billion
market cap and hasn't earned a profit in ... who remembers when. Their stock
went up 6-7 fold on hype, while they can't even get sales back to 2014 levels.

Splunk, $9 billion market cap. This is a company that bleeds red ink by the
barrel ($800+ million in losses the last three years, on $2 billion in sales).
Oh but they're growing fast so it's ok? It won't be ok when the music stops
and they have to cap the red ink, then the growth that's artificially juiced
by that goes with it.

Broadcom, 50 times forward earnings, lucky if their growth hits 15% in the
next year.

Texas Instruments. Zero growth for years. The stock is up roughly 40% in the
last year. Pure multiple expansion.

Priceline.com, 40-45 PE ratio, lucky if they can hit 10% style growth in a
given year since 2013. Stock is up 50% since 2014, while earnings are still
below that level.

This list only keeps going.

Is it as bad as 2000? No, it's merely extremely bad today, not yet dotcom
bubble days bad.

~~~
cletus
Your point isn't without merit but a little overstated. A couple of points:

> Microsoft was sporting a ~50-65 PE ratio in 1999/2000.

Today's PEs:

    
    
        MSFT: 28.35
        GOOG: 34.74
        AAPL: 18.55
        FB: 38.64
        CSCO: 18.08
        ORCL: 22.18
        T: 16.33
        VZ: 12.54
        CMCSA: 17.56
        INTC: 15.56
    

As you say there are some outliers too:

    
    
        NVDA: 57.80
        TSLA: --
        AMZN: 277.89
        NFLX: 201.87
    

Now I went through a list of the largest tech companies to produce the above
list. What this seems to show is that the sector as a whole isn't overvaluaed,
at least in terms of earnings.

As for the outliers, they're all pretty much examples of large bets on the
future of the various companies:

\- Nvidia seems to be well placed for GPU driven ML

\- Tesla is a bet on battery tech and self-driving cars

\- Netflix is a bet on Netflix dominated global on-demand entertainment and
distribution (they're now in all but 4 countries)

\- Amazon is of course a bet on owning the online retail sector

Like any bet some will pay off and some won't.

> This list only keeps going.

See now that's a bit of a stretch.

~~~
adventured
It's not a stretch, the list of companies whose valuations have dramatically
increased with between zero and very little growth, is a long one.

That's the part where the market has kicked into bubble valuation territory,
when you're primarily seeing multiple expansion driving 40% or 100% type
gains.

Microsoft hasn't been able to grow earnings for years. Why do they have a 30
style PE ratio? Why did their stock triple on zero earnings growth? Comparing
their growth today versus the multiple, against 2000's valuation, today's
value proposition is drastically worse. Or spread it out, compare 1995-2000
MSFT growth, with the multiple they had at the end of that five years, versus
2012-2017 growth and the multiple they have now.

~~~
adventurer
Looking at the charts back to 2015, Microsoft has grew earnings pretty
steadily. I believe they attribute it to pushing everyone to the cloud.

~~~
adventurer
*grown? Ah, geeze.

------
refurb
The coming correction is going to be a big one! Just look at what the stock
market has done since the election. The DJIA went from 18,000 to almost
24,000. That's a 33% increase in a year!

The good news is that if you've been in the market for a while, you're way up
anyways. The 10-20% correction will come giving you an opportunity to buy low
again.

And then in a decade we'll repeat everything again!

~~~
AznHisoka
Past results dont predict the future.

The current boom since 2011 could easily extend for another decade, just like
the boom from 1980-1990. If you felt there was going to be a correction then
just because "its due" you would have missed the huge boom from 1990-1999.

~~~
refurb
This is very true and why I'm staying in the market.

The only reason why I think we're due for a correction is that PE ratios and
the like seem out of wack. But you are right, this could keep going for a long
time and maybe the economy would grow enough to start to justify the stock
prices.

------
m3kw9
2000s was a time when even penny stocks that did similar stuff to real
company’s, they would go up big just from stock board members pumping them up

~~~
fourstar
See: ICO.

------
readhn
the end is near..? ..is everyone in yet?

------
ShabbosGoy
Real wages have not risen in over 40 years.

~~~
temp20160423
Real wages in silicon valley for the hot industry at the moment have
definitely gone up the past 40 years.

