

Bubble Trouble? I Don’t Think So - sayemm
http://bhorowitz.com/2011/03/24/bubble-trouble-i-don%E2%80%99t-think-so/

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adamt
On the whole an excellent article, but i think there is one big flaw in his
reasoning.

Hs opening argument is that back in 2000, Ebay, Amazon, Cisco, and Akamai were
trading at ridiculous multiples, but they are now much more sensible. The
issue with this argument is Ebay, Akamai etc were the Zynga, Twitter and
Groupon's of their day. They are now businesses with 10 years of trading
history and relative flat revenues. For example Ebay's current revenue annual
growth is just 5% and Akamai's 6%. It's hardly surprising that their multiples
are low now (for comparison eBay grew 100% year on year back in 2000)

If he put Twitter, Facebook, Zynga and Groupon in that table then I think the
numbers of today would be as bad as the numbers of 2000. e.g. Facebook and
Groupon is at roughly 25 EV/Revenue (where Cisco and Amazon were in 2000) and
Twitter is prob more like 100 (comparable to ebay). The PE ratios (for those
that make profit in this group) would be even more stark.

Obviously the companies I've listed are still private, but that is more a
factor of the IPO markets, and companies choosing to delay an IPO where as in
2000 a company like Facebook or Twitter would have IPO'd by now.

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phil
In other words you're saying that a bubble might only affect new companies
spawned by that bubble. That wasn't true in the late 90's though -- just look
at the telecoms. Many of them had substantial trading histories, but they also
saw big runups in their valuations followed by big drops in the early 2000s.

Also, the author talks about this in the first paragraph of his post:

 _Similarly, in recent high profile private financing rounds for private
technology companies with valuations over $1B, the valuation multiples were at
or below corresponding multiples for publicly traded companies such as
Google._

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adestefan
The bubble affects the companies that are trying to get a piece of the bubble.
The runups in the telecom industry was due to them moving into laying fiber
optics spurred in large part by Global Crossing flying high.

~~~
phil
Sure, but aren't Google, Salesforce, Amazon and others doing much the same
thing by building/buying cloud computing platforms, social networking
products, and so on?

That's widening the companies from those Ben Horowitz named, so maybe
valuation:value IS climbing for public companies that are trying to get in on
the hot stuff of the day. That would certainly be an interesting argument, I'd
love to see someone make it :)

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pedalpete
Wow! His writing style is amazing.

Though I have a question about the metrics he uses for measuring the bubble
based on valuations of Venture Capital raised.

During the boom, Venture Capital raised $200 Billion, but he is comparing that
to the $50 Billion raised during the recession of the last few years. Those
metrics shouldn't add up.

Also, he isn't factoring in the growth of Angel Investment, which is taking
the place of early VC. Sure, each individual deal may be small, but there are
(from what I've heard) so many of them, that it all ads up.

Am I understanding the dynamics correctly? or missing something?

