First area of possible bubble
Google, Amazon, Apple, Facebook, Twitter have access cash and are spending at epic proportions which was close to $66Billion in 2014 (8 times more than in 2009) and more than twice as much as all VC capital spend together. They together own $60Billion worth of assets, property, equipment (As much as General Electric) and employ 300,000 people. These firms are making significant and speculative bets like Amazon investment in content and video streaming, Google throwing cash at driverless cars, robots and thermostats, Facebook going into Virtual Reality Headsets, and so on…Compare this with other big companies that did not fare well of Microsoft, Nokia and Yahoo as they were in adjacent areas.
Second area of concern
Private markets are extremely exuberant which was demonstrated on Dec 4th Uber private funding round which valued this 5 year firm at $40Billion. There are 48 American firms which value over $1.1Billion backed by VC (while there were only 10 in the dotcom bubble hit us). Just recently a peer to peer lending platform called Lending Club had a huge share-price valuation.
Having said all this – there are some areas which makes us believe that the bubble is yet a bit away. So it is not all bad.
1. NASDAQ index of main tech firms is valued at only 23 times expected earnings vs. 100 times back in 1999/2000 for dotcom companies
2. Barron’s an investment magazine, published an analysis showing 51 listed technology firms would run out of cash within a year back in 1999/2000 – their recent similar analysis yielded only 5 listed tech firms with wobbly financials.
3. Part of the increased focus on private funding is the shift away from equity market / stock market as entrepreneurs want to avoid the bureaucracy involved in public offering.
4. More institutions are buying into private technology firms alongside VC firms.
5. Many more VC firms are chasing a few firms, some folks are worried about frothy valuations.
MarkiTech Analysis: Our analysis from seeing all the above, we believe there could be correction in the later half of 2015 (Barring some positive signs) not just based on the above analysis but more importantly the macro economical situation which is strikingly similar to 1999 (GDP growth rates, European Crisis, Japanese stagnation, oil price crash, surging dollar etc.,). Having said that – this time technology is really making a positive difference in people life and couple that with the recent oil price dip, the strength in US Dollar, the reduction in employment rate, the increase in entrepreneurs and jobs being created, the Chinese growth factor are some of the factors that could possibly delay this tech bubble to burst.
(excerpts from recent articles in Economist)
Contributed by Nauman Jaffar
CMO & Founder, MarkiTech