Dotcom Deja Vu - 10 reasons why the bubble is back
It has been ten years since Netscape skyrocketed, starting the biggest stock market binge in history. I cannot shake the feeling that those days of overexcitement, lousy valuation analysis and moronic greed are back with a vengeance.
I put together a little bubble manifesto. Here are ten reasons the dotcom craze is back:
1. A certain advertising company from Mountain View earns about 400 million dollars annually and is valued at 80 billion dollars, more than Time Warner, a media company earning eight times as much.
2. Jamdat, a cellphone game developer, buys the rights to sell a mobile version of Tetris for the next 15 years. It gladly pays 132 million dollars, which equals a 100 times its operating income.
3. While refusing to supply the investing public with any earnings guidance at all, Google has the time and energy to send out a press release about its quest for two new cafeteria chefs. The release meticulously lists all the free perks available to google employee.
4. The media hypes blogs, vlogs and podcasts. Rupert Murdoch shells out 580 million dollars to acquire Intermix, owner of the blog and dating site Myspace.com.
5. The price-to-earnings ratios of internet bellwethers Google, Yahoo!, Amazon and Ebay climb to 87, 31, 39 and 64 respectively. In comparison, the S&P 500’s recent P/E is around 20, the historical average is around 10.
6. The majority of analysts covering the stocks mentioned above rate them a buy or strong buy.
7. Chinas Baidu.com starts trading at 64 times its revenue in Shanghai. Its Nasdaq ADRs jump more than 200 percent on the first day. The tiny company is competing directly with search behemoths like Yahoo! and Google. (Update: Baidu surged 354 percent on Nasdaq the same day, its PE now is 2857)
8. Resuscitated online music retailer Napster books revenue of 21 million dollars. It also books a loss of 19.9 million dollars. Piper Jaffray analyst Gene Munster comments: “It was a good quarter.”
9. “Fortune”, the “New York Times” and others quote Morgan Stanley’s Mary Meeker (”Queen of the Internet”) gain - in connection with tech stock valuations. Internet bull Meeker is unconcerned with Google’s skyrocketing share price and calls the search company the “eBay of information”.
10. Tech stock P/Es climb to their highest level in years. They are considerably higher than most other sector multiples. Analysts begin to argue that different sector P/Es are not comparable and growth expectations need to be figured in. The PEG ratio, an old bubble favorite which appears lower than P/Es, finds its way back into stories.
I rest my case. It’s gonna be a helluva ride….