Why The 'Not-Com' Stock Bubble Is Popping (theatlantic.com) 56
"In the dot-com bubble, public investors got hosed," remembers The Atlantic. "Today, it's public investors that are doing the hosing."
When the web browser Netscape went public on August 9, 1995 -- the day many cite as the beginning of the dot-com bubble -- its stock skyrocketed from $28 to $75 in a matter of hours, even though the company wasn't profitable. In today's market, the opposite is happening: Unicorns with no positive earnings are getting slaughtered at the gates. WeWork's valuation fell more than 80 percent pre-IPO when investors balked at its mounting losses. Peloton, Lyft, and Uber have also struggled to persuade public markets to grade them on a curve; all saw their stock prices fall on the day of the public offering. Institutions and retail investors are refusing to fork over to unicorns the valuations that private investors were expecting -- particularly Softbank, a major backer of Uber, Lyft, and WeWork.
This isn't a picture of mass mania. It's a picture of public sobriety, where the masses are diagnosing an acute fever in private markets.
Second, there is little sign of a crisis for firms whose main product is pure software. Judging from the news, you might think this has been a terrible year for technology companies. But tech IPOs have been strong for the past two years, "as long as what you're buying is actually a real tech company," JP Morgan's chair of market and investment strategy, Michael Cembalest, wrote in an October 7 research note. By "real tech," Cembalest was referring to companies whose principal product is software, rather than, say, WeWork, which is in truth a real-estate company caught wearing an Actual Tech Company costume before Halloween.
The article makes it case by citing three "real tech" companies which grab fewer headlines because they sell cloud services or business-to-business software. "But all of them are trading more than 100 percent above their listed IPO price."
This isn't a picture of mass mania. It's a picture of public sobriety, where the masses are diagnosing an acute fever in private markets.
Second, there is little sign of a crisis for firms whose main product is pure software. Judging from the news, you might think this has been a terrible year for technology companies. But tech IPOs have been strong for the past two years, "as long as what you're buying is actually a real tech company," JP Morgan's chair of market and investment strategy, Michael Cembalest, wrote in an October 7 research note. By "real tech," Cembalest was referring to companies whose principal product is software, rather than, say, WeWork, which is in truth a real-estate company caught wearing an Actual Tech Company costume before Halloween.
The article makes it case by citing three "real tech" companies which grab fewer headlines because they sell cloud services or business-to-business software. "But all of them are trading more than 100 percent above their listed IPO price."
It's not about market share or growth... (Score:5, Interesting)
It's even worse when people start realizing the business models that push fixed costs onto the gig economy employees, like those who use their cars to deliver people or food. A basic analysis of competitors and substitutes in a market could crush the basic business models of the majority of these startups. People are waking up to the reality of classic economics and stock valuations beyond the "irrational exuberance" being exhibited yet again for another generation of suckers.
Re:It's not about market share or growth... (Score:5, Insightful)
Don't worry drivers, we're losing money on each trip, but we'll make it up on volume! #uberlogic
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But that logic does work, if your costs are mostly fixed costs and don't scale linearly with units sold.
If the *marginal* cost to add one more customer is less than you make per-customer, you can indeed *make it up on volume*. The problem is that they have unrealistic growth forecasts. Ubers are only good when you don't have options. If the market for trips between two specific areas grows then a city has the option of just putting more buses on to serve that route. Good public transport planning is thus Ub
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That was Amazons plan. It worked out well for them.
Re: It's not about market share or growth... (Score:2)
For someone that has followed Louis Rossmann and his struggle to find a decent location for his shop in NY it's pretty clear that there is a real estate bubble building. The 2008 events did just take the tip of the iceberg.
Not exactly (Score:5, Insightful)
Many companies are ridiculously overvalued. Beyond Meat was recently valued at 100x its revenue. Its market cap was over 25% of the companies in the S&P500. It would have to sell $8 billion of its products per year in order to justify that. Yet it was only projecting $200 million in revenue. It makes zero sense. Same thing applies to a company like Tesla. They have market caps that exceed car companies that actually make money. Eventually these companies collapse and make a lot of bagholders. Uber still has a market cap of $54 billion. Why?
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Many companies are ridiculously overvalued. Beyond Meat was recently valued at 100x its revenue. Its market cap was over 25% of the companies in the S&P500. It would have to sell $8 billion of its products per year in order to justify that. Yet it was only projecting $200 million in revenue. It makes zero sense. Same thing applies to a company like Tesla. They have market caps that exceed car companies that actually make money. Eventually these companies collapse and make a lot of bagholders. Uber still has a market cap of $54 billion. Why?
Beyond Meat, Tesla, and other technology companies that actually invent novel technologies (as opposed to the "gig economy" examples cited in TFS/TFA) have patents, first-mover advantages, and other things that might plausibly lead to them becoming much more valuable in the future. We can quibble about what order of magnitude of "overvaluation" is appropriate (are meat substitutes going to take off by a factor of 100?), but it's not just about what the company is doing right now.
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Um no. What "novel technologies"? Fake plant based meat (already done), Electric cars (already done). The only difference is the shine that the investment banks and scammers put on it. There is nothing novel about either company. The only reason they have survived to this point is because money had been poured into them. Once the recession hits they will be gone.
Re:Not exactly (Score:5, Interesting)
Most startups need huge cash injections initially to survive and grow, by the way. That's nothing new.
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Obviously. But is Beyond Meat going to sell 100,000% more product? What are the chances of that? And what makes people think that fake meat IS a huge growth market? Or EVs? Global EV sales have been declining. It makes zero sense. I know a lot more about it than you do. Both Tesla and Beyond Meat will be gone in 5 years.
Re: Not exactly (Score:2)
American diet fads fade quickly and war on meat is not sustainable. Meat is not unhealthy despite what vegetarians and cereal companies might have told you. On the other hand excessive carbohydrate intake is linked to a number of neurodegenerative and metabolic diseases. Fake meat is a risky market and all it takes is some recommendation from some expert on TV to kill the whole thing.
Re:Not exactly (Score:5, Insightful)
Um no. What "novel technologies"? Fake plant based meat (already done), Electric cars (already done). The only difference is the shine that the investment banks and scammers put on it. There is nothing novel about either company. The only reason they have survived to this point is because money had been poured into them. Once the recession hits they will be gone.
It's true that electric cars have been made since the early 1800s, but Tesla is constantly developing novel technologies for impact resistance [google.com], charging-cable cooling [google.com], battery safety [google.com], and over a thousand other items [google.com] that they hope will make their products better and fuel their growth. The same goes for Nissan, Toyota, and every other company in the electric car space (and the meat-substitute space, and aerospace, and...).
That you cannot or will not see this does not speak to a lack of invention on the part of Tesla or Beyond Meat; it speaks to a lack of understanding on yours.
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None of that is novel. You guys just think it is because you are ignorant of the space.
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Tesla is novel because pre Tesla involved garage shed companies producing slightly upscaled scooter cars, with electric off-shelf parts and low urban commute range. These got regulated as some form of tax rebate in a lot of the world, but due no large scale production or pragmatism they ended up never leaving the low end of car manufacture.
Then Tesla built a luxury car that also qualified for less tax rates due being a "electric car", and they spent effort on building a charge network making it possible to
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Yeah, that's why the established car manufacturers produce cars with the same or better efficiency .... oh, wait, they don't. Porsche's competitor to the Model S costs a lot more and has a range of approximately 2/3 that of the S.
Yes, EVs have been around for a long time (the first cars were electric), but Tesla has a clear technology lead.
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Beyond Meat is a bit of a stretch. The real revolution will be cultured meat, but a lot of scammers there too.
The thing about the financial market is that its very foundation is based on scamming. The internet has clarified it a bit, but nobody seems to care as long as they believe they can cash out at the last second before the tent collapses.
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I'm only saying that "soy" meat is not a particularly good investment. Cultured meat is real meat. That tech has a real future. And people do want to eat meat, or they wouldn't be buying so much.
Yeah, let's serve bugs at all the climate summits and state dinners on Epstein's Island, then we'll see how serious they are. Maybe as a turkey stuffing or meatloaf filler... Mix it up with a bunch of other shit, who's gonna know?
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The food vats (Score:2)
Oh it does make sense! (Score:2)
In that a bunch of complete idiots lose their money falling for the valuations, to a bunch of complete idiots making them.
All that is missing, is the "i" in front of every of their products. ;)
Erratum: ... bunch of complete *assholes* (Score:2)
Obviously, the second one should be "complete assholes".
Re: Not exactly (Score:2)
Yes, inflation of perceived value is what has caused this. If Facebook was worth a billion dollars when they went public, why shouldn't a company with an actual product be worth 5 billion? The private investors are looking at history to set their expectations, without considering that a history that happened inside a bubble is useless for comparison. The market on the other hand learned from history, and isn't buying it.
Re: Not exactly (Score:1)
Uber (Score:2)
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Wow, my browser is almost 25 years old (Score:1)
And it's still the best in the business. Nobody else comes close.
I've grown accustomed to its face.
And the mail program ain't so bad either.
The composer? Who needs Dreamweaver?
VC firms overestimated the stupidity of investors (Score:2)
Remember (Score:5, Insightful)
Apple has been dying for over three decades now. But they're still here and stronger than ever.
Amazon was also seen as a failure for the first decade or so. But look at their profits today.
Bitcoin was ridiculed right here on Slashdot when it launched. But look at the price today.
Tesla's plans are so big that they had to build their own battery manufacturing facilities.
Look at the long-term picture of what those companies are trying to do before you dismiss them.
Scams are not new, but don't put all startups in the same basket.
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Re: Remember (Score:2)
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Notice I did not mention Uber, nor Twitter.
Bitcoin (Score:1)
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And Apple was dead for half that time, requiring MS to invest to have a competitor throughtout the 90's and into the early 2000's. Then it pivoted to the iPhone.
For the first decade it made small money as an online retailer. Now it stumbled into being a cloud provider and ad company.
Bullshit! They grew first! (Score:2)
For them to even be dumpable by the investors, those very same idiots must have pumped them first!
So no. The tables are not turned. Some assholes are still leeching money out of the pockets of those who actually do the work.
Stocks have ponzi value (Score:3)
It's an uncomfortable truth, but the stock market is very much a ponzi scheme. Aside from dividends (no, the vast portion of stock owners and transactions chase valuations and not income), there is no value from owning stocks other than the hope for capital gains when withdrawing from the market. Paper stock assets only have value when someone buys into the market, just like a ponzi scheme. The embarrassing truth of this faux ownership is well-known and forms the butt of several jokes. In fact, several companies don't even go through the charade of corporate ownership via stocks by issuing "non-ownership" stock, e.g., Google C shares.
The value of stocks is putatively tied to some measures of corporate health or future health. However, there is no mechanism for ensuring this, which means that the actual value often vary based on factors that are unrelated or tenuously related to corporate health such as rumors, loosely related world events, political/ideological identification, etc. A large majority (80% [cnbc.com]?) of transactions are machine-programmed trades. Many of these trades are motivated by short-term strategies that have little or nothing to do with corporate health.
There shouldn't be any shock whatsoever when stock bubbles form and pop. The real shock should be that the stock market benefits as many investors as it does.
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It's an uncomfortable truth, but the stock market is very much a ponzi scheme.
You keep using that word. I do not think it means what you think it means.
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It's an uncomfortable truth, but the stock market is very much a ponzi scheme.
You keep using that word. I do not think it means what you think it means.
It actually does. From wikipedia [wikipedia.org], "A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors." The stock market leads people to believe that money and wealth are created by the market, when in fact, the only way for investors to gain profit is for new investors to pay them for their shares, with the new investors hoping that yet future investors will pay them even more for their shares. Just as the more commonly reported ponzi sche
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So the shares are worth zero, except for the bits that aren't worth zero. Glad you cleared that up. But what about all the other assets that those shares represent that you seem to have glossed over?
Aside from dividends, the shares are worth zero except for what the new investor is willing to pay, just like in a ponzi scheme. As for the connection between the actual corporate assets and shareholders, there is none. If the company goes bankrupt, the shareholders usually get zip. If you walk into the corporate office and claim benefits as a shareholder, you get zip. If you want the share price to reflect the assets, they won't unless the new investor is willing to put up cash, just like a ponzi schem
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the shares are worth zero except for what the new investor is willing to pay, just like in a ponzi scheme
You appear to have failed to understand core concepts like assets and projected future income.
If I start a company, it buys Manhattan and gives zero dividends because it's saving all of that rental income so that in a decade we can buy Wales, my company by your measure has 0 value because it doesn't pay dividends.
You've just told me that owning Manhattan is worth nothing. Are you really sure about that?
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the shares are worth zero except for what the new investor is willing to pay, just like in a ponzi scheme
You appear to have failed to understand core concepts like assets and projected future income.
If I start a company, it buys Manhattan and gives zero dividends because it's saving all of that rental income so that in a decade we can buy Wales, my company by your measure has 0 value because it doesn't pay dividends.
You've just told me that owning Manhattan is worth nothing. Are you really sure about that?
Yes, absolutely. That's why situations where Company A buys Company B for less than the sum of Company B's cash sometimes occur. The reason why this nonsensical transaction can occur is because everyone realizes that share prices aren't directly tied to asset values. The stock price might be tied to assets, but that's entirely dependent on what individual stockholders or future stockholders view as assets and whether they decide how much assets should factor into the share price.
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The reason why this nonsensical transaction can occur is because everyone realizes that share prices aren't directly tied to asset values.
Well, of course. They also take into account the market size, revenue, competition and liabilities.
You have no fucking clue. Go and learn something before speaking further on this subject. I've tried to help and you insist on being ignorant. I can't be arsed.
So.... (Score:2)
Companies that have no revenue and no assets see their stock value drop to the penny range.
Last time I checked this was how it was supposed to be? Where exactly is the story here? That the stock market is working the way it was meant to? That's newsworthy now?
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Where exactly is the story here? That the stock market is working the way it was meant to? That's newsworthy now?
Mass Public Behaving Rationally! News At 11!
Sadly, yes. I never did understand why we thought it a great thing for a stock price to triple on their IPO day. All that means is the underrighters vastly underpriced the stock and screwed the company out of two-thirds of it's potential capital. Sounds like a major shafting to me.
Incorrect terminology (Score:2, Troll)
This isn't a bubble. Those stocks simply never took off. Bubbles form when there is bullsh*t in the marketplace. Dotcom was fueled by companies that had no tangible products that were worth anything and the management spent money on stupid stuff e.g. Aeron chairs for every employee. They didn't spend it on creating a product. The housing bubble was created by artificial distortion of the marketplace in the form of trying to social engineer the system to ensure everybody would get a house. It was furth
Another reason (Score:2)
''stock prices fall on the day of the public offering. Institutions and retail investors are refusing to fork over to unicorns the valuations that private investors were expecting''
The most obvious reason is that the equity underwriter overpriced and overhyped the shares in the first place and the market priced them accurately.
Aren't transparent or listed markets the only real way to assess value or
have I missed something.
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the pre ipo investor was the mark this time (Score:1)