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Silicon Valley's Tech Bubble Is Now Larger Than In 2000. Will It Come To An End? (cnbc.com) 144

"We are now officially in a tech bubble larger than March of 2000," argues Keith Wright, instructor of accounting and information services at the Villanova School of Business. An anonymous reader quotes his commentary on CNBC: In case you missed it, the peak in the tech unicorn bubble already has been reached. And it's going to be all downhill from here. Massive losses are coming in venture capital-funded start-ups that are, in some cases, as much as 50 percent overvalued... 76% of the companies that went public last year were unprofitable on a per-share basis in the year leading up to their initial offerings, according to data compiled by Jay Ritter, a professor at the University of Florida's Warrington College of Business, and recently featured in the New York Times. This is the largest number since the peak of the dot-com boom in 2000, when 81 percent of newly public companies were unprofitable...

Several financial models project that up to 80 percent of unicorn companies are set to fail within two years. Uber, the highest-valued private technology company, has rapidly growing revenue but remains highly unprofitable. With revenue of $6.5 billion in 2016, it still registered a net loss of $2.8 billion. The truth is, when a unicorn is overvalued, it doesn't take long for the market to discover this fact.

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Silicon Valley's Tech Bubble Is Now Larger Than In 2000. Will It Come To An End?

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  • by ColdWetDog ( 752185 ) on Saturday May 26, 2018 @02:42PM (#56679168) Homepage

    Bottom line (sorry) - there is a metric shitload of capital out there waiting to make more capital. Since that's all that kind of person (or corporation, but I repeat myself) really worries about.

    It's ALL about dealing with increasing growth. Which then becomes an exponential function.

    Which, in the real world, typically don't end well.

    • by HornWumpus ( 783565 ) on Saturday May 26, 2018 @02:52PM (#56679206)

      I do give Uber a little credit for actual innovation. Buy staying private for so long, they have apparently been able to financially sodomize the VCs. Can't happen to a more deserving group.

      • Re: (Score:2, Funny)

        by Anonymous Coward

        I do give Uber a little credit for actual innovation.

        For having an app written to hail an unlicensed cap?

        THAT is one of the problems of Silly Valley - perceived innovation where there isn't any.

        • Re: (Score:2, Informative)

          by Anonymous Coward

          End-to-end, the Uber experience is superior in every way (for the customer) than a "licensed" cab. The established players failed to innovate, and now are crying foul.

          • by b0s0z0ku ( 752509 ) on Saturday May 26, 2018 @04:40PM (#56679584)
            Disagree. I don't need a smartphone to hail a taxi. Built-in equipment (i.e. my hand) will do. I can pay cash and not have my origin and destination tied to a name, CC#, email, phone, and address in a database. True, I might be photographed, but facial recognition isn't typically used for those photos unless a crime was committed.
            • by AuMatar ( 183847 ) on Saturday May 26, 2018 @08:21PM (#56680486)

              In the US that works in 1 city- New York. And even then only really in Manhattan. If you live in a suburb, or in Queens, and you're trying to flag a cab down I hope you have a few hours. Even in Chicago there isn't a sufficient mass of cabs anywhere other than downtown to make that work.

              • by Anonymous Coward

                The real peoblem US has is lack of public transportation.

              • You know that thing that you use to run the Uber app? It has another app called "phone" that allows you to call a company that will send a cab to you!
                • by AuMatar ( 183847 )

                  Have you ever tried to do that? Have fun waiting on hold, then being told that they'll send a cab right there. Then wait 40 minutes, because they didn't have a free cab in the area (there isn't a single cab network in a city, or even 2 or 3. There's dozens of companies with a few cars each, and either the one you called has to have one free or they have to farm out the request).

                  Then they'll send a car (probably, but I've been stood up by cab companies), but you won't know any real estimate on when it arr

                • Yeah, but the cost is almost double the price of an Uber ride. My wife and I went to a concert in the middle of the city, we planned to go have a couple drinks afterwards and find some dinner, usually we take turns being the designated driver but we both felt like drinking, so we took an Uber. That same day there was some violence between Uber drivers and metered taxi's, so the Uber driver didn't want to get too close to the city center (where there are a lot of metered taxis), so we got him to drop us a
            • It's true that not using cash has security implications. But using cash has safety implications that are far more important for most riders, and also for the drivers. Licensed cabs in big cities have heavy armored walls between the driver and the passengers because the cash that the driver carries makes for a tempting theft target. And the fact that the passenger has to have cash on hand to pay is also a risk. Taking cash out of the equation makes the experience safer, which is why Uber and Lyft drivers can

          • This... I never would dream of taking a Taxi if I can avoid it. I don't mind Uber at all. Taxis are garbage.

            Maybe in places like Manhatten, etc.. where it's just dense population they work and you can hail them on demand, but less dense places where you have to call and wait for a Taxi, no way. But then again, Taxis in Manhatten are miserable pieces of shit in every aspect, so I still prefer Uber.

    • Re: (Score:2, Flamebait)

      by Entrope ( 68843 )

      Yup. Only about 125 years ago, there were clear signs that the expectations exponential growth of the number of horses in big cities meant that soon, the streets of London, New York, and other major cities of the world would be covered in feet, or even tens of feet, of horse droppings.

      In school, we all learned about those feces-filled years of horror before common-sense regulation of the carriage and buggy trade was adopted, right?

      • But school is an indoctrination camp for liberalism. I've got some YouTube channels that will blow your mind. Click the Subscribe button...
    • There is NOT a shitload of Capital, there is a shitload of Debt..

      The markets (and governments) have been allowed to create unfettered inflation, and hide it by making sure the money flows to the top and is locked up before it directly effects consumer pricing (as strongly as it should). This is happening internationally.

      The effect is to inflate away the value of the middle classes assets, making them look stupid if they dont invest in the boom-de-jour.
      At the same time borrowing rates are being forced lower

    • Adjusted for inflation it takes over $1,450 today to equal $1,000 in January, 2000.
  • by Tablizer ( 95088 ) on Saturday May 26, 2018 @02:48PM (#56679188) Journal

    This is the second longest the US has gone without a recession, per the roughly decade-long "business cycle" that's been recurring more or less since the end of the Civil War. Thus, something will probably happen within a year or two. The only real question is how big the downturn will be, and what sectors will be most affected.

    • As much as I disliked HFT I wonder if that may have something to do with the longevity of this cycle. Kind of like ABS on the car, and to push the car analogy further, as long as the driver is not being unreasonable about where he takes the car, maybe the HFT/ABS can help stay on course in moments of danger.

      A bubble burst and a recession is a natural means to purge inefficient businesses. Maybe HFTs slow down the buildup of inefficiencies.

    • by kentrel ( 526003 ) on Saturday May 26, 2018 @04:06PM (#56679460) Journal
      What are you talking about? The US has been in a depression for 10 years with less than 3% GDP growth. Forbes called 2009-2013 the "worst five years since the Great Depression". If anything America is due for a boom.
      • We're somewhere close to full employment, what we are in now is what counts as the "boom". I'd guess that the depth of the downturn after the real estate bubble and the slowness of the recovery are contributors to as to why we haven't had a recession in so long. The basic definition for a recession is 2 quarters in a row of negative GDP growth. The original Great Depression actually had 2 technical recessions in its timeframe, the first one was by the worst and deepest.
        • I don't disagree with a lot of what you say, but I am skeptical of the 'full employment' situation. I think there's a large population of highly qualified people working low paying 'underemployment' jobs.

          I think this is why there is no large wage inflation in the bottom half of the labor market. Companies are still not competing for workers. There are tons of people still looking for a better/additional job.

          I also think this is why all the help wanted adds I see still have an exhaustive list of qualifica

          • Yeah, overall inflation really has stayed low for a really long time, particularly wage inflation. There was talk for most of this decade since the crash of the bond vigilantes showing up any day now, and interest rates are only starting to slowly creep back up from lower bounds recently.

            Labor does seem to be in a surprisingly weak position for how low the topline unemployment rates are. The left has pointed at the anti-union movement from the right, particularly at the state level, and I'm increasingly i
          • I hate to think what tortuous definition of "full employment" must be used to generate the official numbers.

            In the middle pay has been stagnant for over a decade. At the low end, nominal pay has been declining in many places. All the while real cost of living has skyrocketed.

            I don't think depression is quite the right word for it, as production has not collapsed. It's more like a period of widespread upward transfer of wealth, and resulting devitalization of the people. Perhaps more likely to result in soc

          • Those picky companies and long lists of qualifications and people jumping to better/different jobs? Same as I saw back in the late 80s, late 90s, mid 2000s... Pretty common, especially before a recession.
      • Is this a joke?
        3% growth = depression now?

        In nature, there are two kinds of processes:
        1. Perfect systems of cycles in an elegant balance. Those are called successful, harmless and surviving for a loong time.
        2. Runaway processes, that exponentially gobble up and deplete all resources, often killing the host. You know what those are called? ... Explosions, pathogens/pandemics, and humanity. Especially our economy.

        "Stagnation" is factually literally the only thing that will survive. Growth percentages, aka exp

      • Depression and recession are not the same thing. Recession has a clear definition. Depression does not, and depending which defintion you use you could argue that America only suffered through 3 years of depression. Those "worst 5 years" that Forbes are talking about are none the less 5 years of sustained growth and are far preferable to the actual recessions that have happened many times.

        As for the GP, he is right. This is the second longest we've been between recessions (the longest being the dot-com era

        • I think you forgot about the early 2000s recession [wikipedia.org]. Pretty much every 8 to 10 years, we have a recession. The question becomes how deep and how long.
          • I didn't forget about anything. From your own link: "However, economic conditions did not satisfy the common shorthand definition of recession, which is "a fall of a country's real gross domestic product in two or more successive quarters""

            To put that in perspective you're talking about economic conditions on the back of one of the dot-com bubble collapse, ... and it still doesn't fit the traditional definition of a recession. Even if it was technically classed as a recession by the group that classifies th

      • by Tablizer ( 95088 )

        You are redefining terms. And just because 3% growth was common for many decades doesn't mean it's the norm. Growth has slowed for most "mature" nations. And why I should listen to "Forbes"? They are a biased publication.

        By the way, I suspect growth would be higher if it were not bottle-necked at the top.

  • will this popping bubble take down profitable tech companies with it?

    • will this popping bubble take down profitable tech companies with it?

      Unlikely. Back in the 90s, tech companies invested a lot in each other. Equipment, hosting, and services were often exchanged for equity. That isn't happening much this time. If/when Uber finally implodes the only losers will be VCs, who already have a high loss rate built into their business model.

  • by PolygamousRanchKid ( 1290638 ) on Saturday May 26, 2018 @02:51PM (#56679200)

    . . . they'll get a government bailout like the auto and banking industries.

    The government should have broken up GM when they bailed them out . . . making the smaller bits small enough to fail.

    Maybe the government will break up Silicon Valley . . . sending bits and pieces of Silicon Valley to Arkansas, Alaska and Mississippi . . . ?

    • . . they'll get a government bailout like the auto and banking industries.

      They've already gotten a government bailout. It was called the "Tax Cuts and Jobs Act" and it's exploding the deficit. It passed with only Republican votes.

      The tax cuts are the air that's inflating this new bubble. Remember that when the bubble pops.

      • by Anonymous Coward

        Then, why is the US at full employment if it isn't working, and billions of dollars of bonuses being handed out? There is no bubble here, it is just some housecleaning which has made the economy even better, similar to how Reagan got the US out of the permanent stagflation of the 1970s and made one of the most prosperous times in US and world history.

        • Then, why is the US at full employment if it isn't working, and billions of dollars of bonuses being handed out?

          First, the trajectory of unemployment numbers is only a continuation of the Obama years. If anything, the graph is flattening out under Trump.

          https://data.bls.gov/pdq/Surve... [bls.gov]

          • How are prisoners categorised in the unemployment numbers?

          • Easy to "cut" the unemployment numbers when tens of millions of people exit the work force, unvoluntarily [bls.gov]. When the labor force participation rate starts to swing back up, then we'll know we're starting to achieve real full employment.
            • Easy to "cut" the unemployment numbers when tens of millions of people exit the work force, unvoluntarily

              If you look at the graph you posted, you will see that the labor participation rate was better under Obama than has been under Trump. It has not improved one bit since Donald was elected.

              Remember that when people try to tell you that under Trump we're at "full eimployment".

              • I look at the graph and see it was pretty flat from ~1990 until 2008, then dropped for 8 years and bottomed out. Now those still in the labor force are getting jobs, meaning there is now pressure to allow people to re-enter the work force. You see what you want through your liberal-colored glasses, the rest of us see facts inconvenient to you...
        • Then, why is the US at full employment if it isn't working,

          It isn't. Try reading up on the labor participation rate. The actual unemployment rate is somewhere between the U-6 unemployment rate (7.4%) and the inverse of the labor participation rate. It is absolutely, certainly actually over 10%.

          and billions of dollars of bonuses being handed out?

          Since when has that ever had anything to do with anything? For example, We The People have paid the telecoms billions of dollars to build out the last mile, and they've given it out in executive bonuses instead.

          There is no bubble here, it is just some housecleaning which has made the economy even better, similar to how Reagan got the US out of the permanent stagflation of the 1970s and made one of the most prosperous times in US and world history.

          You misspelled "the largest increase in debt in US history" there

          • I did a quick set of calcs a few years ago. Turns out, if we just held the US Federal Budget to an annual increase of no more than the official rate of inflation plus population growth, we would grow our way out of a deficit in about 8 years, and out of the debt in about 45 years. Growth and subsequent tax receipts (Laffer Curve and Hauser's law combined) outpace inflation plus population growth. But the Federal Budget grows faster. It should be held to the cost of delivery (inflation) plus the number o
    • A no toothed white racist social media platform. Isn't that what Facebook is already?

  • by goose-incarnated ( 1145029 ) on Saturday May 26, 2018 @03:06PM (#56679268) Journal

    Profitability is so ... common.

    We need more companies like Theranos, Uber, Tesla ... the profitable companies you probably haven't heard off.

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Profitability is so ... common.

      We need more companies like Theranos, Uber, Tesla ... the profitable companies you probably haven't heard off.

      If I were on an investment website, I'd laugh. But here on Slashdot, I don't know if you're serious or not.

      There are still plenty of people who will insist that Tesla isn't losing money because they are "building up" - even though Musk NEVER said such a thing - ever.

      He has used the "building up" excuse for the negative cash flows from investing, but that's it. He NEVER said that Tesla wasn't losing money - ever.

      The TTB - Tesla True Believers - have become just as delusional as any religious cult.

      • by fred911 ( 83970 )

        "The TTB - Tesla True Believers - have become just as delusional as any religious cult."

          I agree the market cap is ridiculous but that's how the market priced it. It's not about the cars, it's about producing energy storage product. It won't be too long before we'll see they own that market.

          "Place your bets" -- do you want to bet against that guy, seriously?

        • Panasonic makes Tesla's batteries. When Tesla collapses Panasonic can partner with whomever else is better at that particular business. It won't be anybody associated with Musk.

        • Heck yes - they own the market! Too bad they spent billions to buy the market and lose billions more each year to maintain the market...
  • by h8sg8s ( 559966 ) on Saturday May 26, 2018 @04:38PM (#56679580)

    This time it's different.. At least that's what they always say. This go-round we don't have DogFood.com kinds of crap circulating but we do have too much VC money searching out ever more marginal "disruptors" in ever more narrow markets. What's more likely to happen than a generalized tech recession is the VC money will suddenly wise up and decide to sit out the plunge and catch the next cycle on the upswing.

    • The PE ratios of many public companies are higher than their logical growth potential, but nothing like the big bust. Unless the VCsfigure our a way to quickly unload their unicorns in an IPO without too much grief from the SEC, they will be the ones taking the biggest hits.

      But, just like last time when I think retirement is within reach, caution is prudent.

      • Lolz, you would think so..
        But where do you think the VC capital comes from? ;) perhaps not as obvious as you think.

        • Oh, the retirement funds like CALPERS will get killed, and yes, some of the public company “long term investments” will be hit, and there will be a challenge in getting non-equity funding... but it isn’t the end of the world.

    • What's more likely to happen than a generalized tech recession is the VC money will suddenly wise up and decide to sit out the plunge and catch the next cycle on the upswing.

      Absolutely not. The last tech bubble proved that there are always VCs willing to fund things they don't understand. They're not willing to fund just anything with a .com on the end any more, but they're also still not generally competent to understand what they're investing in. That's how we can have another bubble to begin with!

      Some VCs will sit out, and do better for it. But some won't, so we can still have a bubble.

    • In many ways it is different this time. 50% overvalued is nothing compared to the 1000% overvalued during the 2000 dotcom boom which was common in a lot of big stocks. You also had huge amounts of people leveraged to the hilt expecting those rises to continue. While I am sure a lot will get burnt with another bust it won't be anything like the last one as many that got burnt last time learnt that lesson the hard way and won't make that same mistake again. I personally know at least half a dozen that went fr
      • Until you're turning a profit, you're pretty much INFINITE% overvalued. Companies with billions of spend, millions of consumers, and massive annual losses are pretty much never going to make a profit. They ended up buying those consumers with the billions given to them by VCs, and as soon as they change their model to start pushing towards profitability, someone else will come along and buy their consumers.

        It's easy to get consumers - just buy them. Turns out people will take free money - or highly subsi

  • by gravewax ( 4772409 ) on Saturday May 26, 2018 @06:55PM (#56680100)
    as much 50% overvalued? companies during the dotcom boom where hundreds of percent over valued, some 1000% percent plus and they were not the little startups either. Companies like Cisco lost near 90% of their market value. maybe total values are at the same level but the insane overvalue isn't quite their yet, though with some we are rapidly approaching it. It isn't the startups that should scare you it is when the so called bluechips are overvalued.
  • by ErichTheRed ( 39327 ) on Saturday May 26, 2018 @11:26PM (#56681156)

    The first dotcom boom had something this one doesn't serving as a brake on growth...getting big fast (the model for all startups) came at a massive cost. Building out data centers, paying for Internet traffic, etc. This second dotcom boom has the cloud. As a result it's going to take a lot longer to deflate...or get even bigger before it pops which will cause more damage.

    Back around 1999/2000, if a startup was a truly dumb idea, investors would be much less likely to fund their expansion and you'd see a natural thinning of the herd. This time, a startup only has to bring in enough money to pay the monthly cloud bill and can continue expanding for a longer time. They're starting to ship 50-pound bags of dog food for free like pets.com did, simply because they have more money on hand to burn. They're able to hire more workers and pay them exorbitant salaries to stay ahead in a "talent arms race." And, they're able to exist in a money-losing status for much longer because as long as they pay the cloud and the SaaS vendors, they're in business.

    The 90s bubble was about eyeballs, and this one is about monetizing personal information generated by those little supercomputers everyone carries with them. There seems to be an infinite amount of room in the market for hundreds of copycat subscription-box services, "Tinder for X", "Uber for Y", you name it. Oh, and don't forget blockchain enabled, AI-powered dog treat box selection algorithms powered by your Facebook posts of your dog pictures.

    Will it end? You betcha. Will it end quickly? I doubt it...there's a much lower barrier to entry and the capital markets seem unwilling to weed out the copycats.

  • Silicon Valley is the figure head of a post scarcity economy where badge value constitutes the greater portion of all value.

    Point in case: Facebook could go broke and collapse tomorrow and even the most die hard FB addicts would shrug it off and move to the next platform in something like 15 minutes or so.

    In general it allready is the age of cyberpunk and post cyberpunk. The bubble is constantly busting. No news here.

    My 2 eurocents.

  • :-) Obviously a very important word is missing there...

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