Bubbles are a very specific phenomenon where you've got mass psychology and you've got every mom and pop investor and every cabdriver and every shoe-shine boy buying stock in whatever it is...[t]here's nothing like that. We're talking about a fairly small number of companies. And then, we're talking almost entirely on the private side. It hasn't really affected the public market that much.
I could not have come up with a better way to express it. It seems like every time I look at HN, someone is crying "bubble." If pressed to explain what constitutes a bubble, and why they're crying it now, the answers usually involve citing some company (e.g. SnapChat, Twitter) or small number of companies with an insane valuation or financial transaction. "That's a bubble!" they cry.
I'll point out that this is nothing, nothing like the actual bubble of the late '90s/early-2000s, where the public was buying large amounts of stock in brand new, unproven (but public!) companies. Few or none of these companies had turned a profit. Many were disasters of execution (witness WebVan, which has become Steve Blank's prime example of how not to run a startup). VC investment was at a peak. Founders actually expected that their business plans could be executed without modification.
The mindset has completely changed since the crash. Yes, sometimes you have to wonder what the heck the VCs are thinking, or why the SnapChat guy would turn down a multi-billion-dollar buyout offer. Twitter's stock price seems unjustified, and Facebook's did, too, at least at first.
None of that constitutes a "bubble." As MA points out, "bubble" was short for stock market bubble. This is all private stuff, for the most part; few companies dare to IPO these days, compared to the '90s.
The cost of infrastructure has dropped massively, as well; no longer are you required to buy scores of servers just to host your website. One might even be able to host the whole thing on Wordpress. Servers are virtualized and therefore far more cost-effective. You don't need to own the physical hardware. Bandwidth is far cheaper. There are free CDNs.
So: VCs have learned lessons from their '90s mistakes. So have founders. The price of entry has dropped dramatically, requiring far little investment; meanwhile, business model development has learned from software development so that companies learn to grow and change in order to find their audiences.
The problem is that there are two types of bubbles, and those that say there is no bubble are only looking at one type. The real bubble is on the other side: not the individuals, but the banks and funds
The Federal Reserve pumps hundreds of billions of dollars every month into the economy in various ways. The traditionally safe investments (like treasuries) aren't performing well because interest rates have been suppressed for years. As a result, all this cash is being thrown at anything that has a hope of yielding a return.
The bubble here is that, at least in the view of many observers, the current situation is unsustainable. At one point, something will happen (in recent days, the suggestion is that the fed may slightly trim asset purchases). Once that liquidity is sopped up, what happens? Most likely, a bunch of investors will end up suffering losses in the face of "down rounds", early stage investors will tighten in the face of concerns regarding the late stage investors, and the bubble will burst.
Nitpick: Bubble's really short for speculative bubble.
Stock market bubbles might be the most common kind of speculative bubble, but they're not the only kind. Tulips and houses come to mind as clear counter-examples.
Facebook's stock price still seems unjustified. They're losing momentum, and not picking up the new generation of kids, which severely mitigates the relevance of their platform going forward. How, exactly does that justify their price being > 200% of what it was six months ago?
"Markets can remain irrational longer than you can remain solvent."
They have over a billion users. Growth tends to slow once you've approached 20% of the entire human population.
But to answer your question: The stock was undervalued in June.
FWIW, I bought FB stock at $28 and recently sold once I doubled my money. I sold because I think FB has found its value and I don't personally think it will see much growth. This $50-60 range feels right to me. So I took profit.
But still, Facebook is priced for growth. Which is problematic for a company that's starting to see its userbase decline.
That, and it's easy to look good playing tech stocks in a year when the NASDAQ goes up by 34%. In another few years, I'm not so certain that a P/E of 140 for a company that seems to have hit its plateau will still look like such a fair valuation.
I get it, you're bearish on FB. But your comments suggest that you think the stock market should work like an algorithm. You input growth and users and past stock price and out comes the perfect number. Momentum investing isn't anymore BS than value investing. You act like there needs to be some verifiable reason FB is worth "over 200% more" than it was 6 months ago. Well, there is: There's a lot more people today that have faith in Facebook's ability to grow and create wealth than there was 6 months ago.
Like I mentioned elsewhere, I sold FB. I'm not a true believer who thinks this will be the first $1 Trillion company. But I think objectively, you're bearish on FB and I think it clouds your judgment.
This is a company with a reputation for high quality engineering. They have 20% of humanity as users. It's grown to staggering proportions. I'm reminded of the people who called it a house of cards when it hit 100 Million. And it's grown from that insanely amazing number by a magnitude.
Over the last 4 quarters, Facebook has increased revenue and profit by nearly 30%. Net income? Up over 600%. It made a billion dollars in 2013 and should double that in 2014.
I'm not trying to sell you. I'm just suggesting that possibly you are letting preconceptions cloud your judgment. It's growing slower? It has some issues with teenagers? Facebook's history gives me no reason to believe their future growth depends on hooking users at a young age. I'm not sure how you reach that conclusion.
Anyway, feel free to have the last word, I'm not one for internet debates.
I didn't say they were dead, or even dying. But they certainly aren't growing at a rate that warrants a literal doubling in their stock price over a six-month period.
And, yes; I meant "mitigates." "v.tr To moderate (a quality or condition) in force or intensity; alleviate."
You can have a private bubble - it's just a smaller market.
There's certainly a trend, that software companies add value. There may also be a bubble atop that - it's hard to tell.
But I do hesitate over all these social startups; they seem close to fads to me. But this may just be my personal preference for tangible concrete usefulness, as opposed to communications (which admittedly has a history of success).
Note: amazon has never made a profit (partly because they reinvest). No profit from glorified mail-order doesn't surprise me - though AWS is a perfect online business.
As you suggest part of the confusion is a lack of an agreed-upon definition of "bubble." Another part is poorly defining what constitutes the bubble. Is the bubble technology in general? Obviously not -- people aren't going to stop using computers like they stopped buying tulip bulbs. So it's easy to point to that, say "look, 5 billion smartphones!" and conclude that there cannot be a bubble, unless you expect everything to stop using smartphones.
On the other hand, there may well be some bubble-esque things going on in the VC/startup area. It's a bit of sleight of hand to try to disprove that by looking at smartphone sales, because those are generally all sold by big established companies like Apple and Samsung, not by startups.
Personally, I don't expect the startup scene to come crashing to the ground any time soon, but at the same time it helps to be more precise in defining what exactly the bubble is supposed to be. The fact that Apple and Samsung continue to turn a profit doesn't necessarily have anything to do with startups like Snapchat.
With all the recent insane valuations by VC's, you'd assume that there'd at least be a tech bubble in the private investment market. However, VCs aren't even close to investing as much as they did in 1999 and 2000 (less than half). In fact, they even invested a little more in 2007-2008 than they did in 2011-2012 [0].
I could not have come up with a better way to express it. It seems like every time I look at HN, someone is crying "bubble." If pressed to explain what constitutes a bubble, and why they're crying it now, the answers usually involve citing some company (e.g. SnapChat, Twitter) or small number of companies with an insane valuation or financial transaction. "That's a bubble!" they cry.
I'll point out that this is nothing, nothing like the actual bubble of the late '90s/early-2000s, where the public was buying large amounts of stock in brand new, unproven (but public!) companies. Few or none of these companies had turned a profit. Many were disasters of execution (witness WebVan, which has become Steve Blank's prime example of how not to run a startup). VC investment was at a peak. Founders actually expected that their business plans could be executed without modification.
The mindset has completely changed since the crash. Yes, sometimes you have to wonder what the heck the VCs are thinking, or why the SnapChat guy would turn down a multi-billion-dollar buyout offer. Twitter's stock price seems unjustified, and Facebook's did, too, at least at first.
None of that constitutes a "bubble." As MA points out, "bubble" was short for stock market bubble. This is all private stuff, for the most part; few companies dare to IPO these days, compared to the '90s.
The cost of infrastructure has dropped massively, as well; no longer are you required to buy scores of servers just to host your website. One might even be able to host the whole thing on Wordpress. Servers are virtualized and therefore far more cost-effective. You don't need to own the physical hardware. Bandwidth is far cheaper. There are free CDNs.
So: VCs have learned lessons from their '90s mistakes. So have founders. The price of entry has dropped dramatically, requiring far little investment; meanwhile, business model development has learned from software development so that companies learn to grow and change in order to find their audiences.
That is why there is no "bubble."