More bubble talk...

[DavidL]

This was the lead story in the business section of SMH on Sat...

http://www.smh.com.au/business/coming-your-way-soon-a-new-hightech-bubble-20110520-1ewst.html

 

[DomainNames]

strange that Fairfax media who wrote the story would write about a technology bubble when their whole investor presentation and asx market report says the opposite!

havent noticed them dumping any of their 30,000 domain names and websites they are developing via www.omg.com.au

Talk of a bubble represents two things time to sell or time to buy. Make your own choice people. Being fearful achieves nothing.

" Analysts have correctly forecasted 1 of the last 200 bubbles" ... Brian Tracy

Google image the term "Market trend chart"

 

[Chris.C]

I think this sums up a lot of the tech bubble:

One thing is for sure, Blodget - the fellow who picked Amazon's share price rise like a nose - doesn't agree things are overheated to the point of bubbling over. "I think the bubble talk is ludicrous," he says.

But he says in the same breath: "It doesn't mean investors aren't going to lose their shirts - tech shares are risky."

At the end of the day the internet doesn't leave lots of room for runners up.

In most markets there are only a couple of key players who win the majority of the market share and the rest aren't profitably enough to continue to compete.

This, in most cases, is due to the low switching costs between sites and the fast speed at which valuable sites become noticed (ie they "go viral").

So when people are "investing" in unproven online businesses what they are really doing is "speculating" that their company might the ONE that dominates the market, but in the majority of cases their company is far more likely to go bankrupt with the REST.

 

[neddy]

And a couple of nice stories in Smart Company today:

http://www.smartcompany.com.au/inte...ortium-led-by-james-packer-andrew-bassat.html

http://www.smartcompany.com.au/inte...investment-binge-extend-to-smaller-sites.html

 

[DavidL]

I don't really feel there is a general tech bubble - possibly in the coupon/deals area but elswhere I just can't help but see value - against other media anyway.

Just from an advertising POV I think we still have billions and billions of dollars currently being spent each year elsewhere that will come online sooner or later. All that 'old media' money will surely push up more sustained activity online

So when people are "investing" in unproven online businesses what they are really doing is "speculating" that their company might the ONE that dominates the market, but in the majority of cases their company is far more likely to go bankrupt with the REST.

That's probably true but if 95% fail and 5% each return 100 x your money, then it's worth playing the game isn't it? kind of... you know the point I'm making.

 

[snoopy]

strange that Fairfax media who wrote the story would write about a technology bubble when their whole investor presentation and asx market report says the opposite!

havent noticed them dumping any of their 30,000 domain names and websites they are developing via www.omg.com.au

Talk of a bubble represents two things time to sell or time to buy. Make your own choice people. Being fearful achieves nothing.

" Analysts have correctly forecasted 1 of the last 200 bubbles" ... Brian Tracy

Google image the term "Market trend chart"

A few points,

-The story writers job isn't to give the viewpoint of the CEO of Fairfax. In this case it doesn't look like it was written by an employee either,

"Kate Askew is the author of Dot.Bomb Australia: How we wrangled, conned and argie-bargied our way into the new digital universe."

-Secondly the bubble talk in't unreasonable, eg linked in trading at levels hundreds of times its profit. Things definitely seem frothy in some areas.

-Thirdly - Whatever Fairfax may say to investors isn't necessarily the words of the wise. As a company they've be going down the tube for years. They have lost all the major markets they once dominated, realestate advertising (to realestate.com.au), employment (to seek), and lastly news itself with the demise of newspapers.

 

[Shane]

I think bubble is a strong word, but there's no doubt it's getting very heated. As snoopy pointed out, Linkedin is trading at a massive multiple right now. They will need to enjoy huge profit growth to justify the price.

havent noticed them dumping any of their 30,000 domain names and websites they are developing via www.omg.com.au[/url[/QUOTE] This i...n of a bubble that is getting ready to burst.

 

[Chris.C]

Just from an advertising POV I think we still have billions and billions of dollars currently being spent each year elsewhere that will come online sooner or later. All that 'old media' money will surely push up more sustained activity online

The key word you used there was "sustained". Now unless you are talking about Google, Apple, Microsoft, Amazon, etc you're not talking about companies that have a track record that can justify the term "sustained" profitability.

Most online investments (even buying domain names) is "speculative" by nature.

So when big money starts chasing unproven models - you have a speculative bubble by definition.

That's probably true but if 95% fail and 5% each return 100 x your money, then it's worth playing the game isn't it?

And here lies the question - can you still get an ROI even if many of your investments fail. The majority of people never diversify enough to ensure this in which case the answer is "no" it's not worth playing the game.

The next obvious question, is a higher risk reward investment strategy more profitable that a more reserved strategy. Historically, when it comes to buying companies - tried and true companies make for better investments.

That said, it would appear that the average punter derives at lot of utility from the excitement of gamble or the chance to go from zero to hero, thus why we all love riding on a speculative bubble...



So it might be worth the investment if you are looking to add a bit of spice to your life.

 

[DomainNames]

if its a bubble count us in! The internets only just starting in Australia guys who knows where it will be in 7 years ( there was no facebook 7 years ago !)

http://www.catchoftheday.com.au/news.php?article=541

 

[DomainNames]

Jackpot: how brothers will slice up Packer's millions

Read more: http://www.smh.com.au/technology/bi...rs-millions-20110523-1ezny.html#ixzz1NAyRkd1C

 

[Timmy]

Jackpot: how brothers will slice up Packer's millions

Read more: http://www.smh.com.au/technology/bi...rs-millions-20110523-1ezny.html#ixzz1NAyRkd1C

That articles sums up the "bubbles" argument - "tastes like crap"

 

[GerBot]

200 times earnings for linkedin, yeah that seems normal..... NOT.

but hey what does Australia know, still paying 7 times earnings for houses!


*duck*

 

[FirstPageResults]

TechCrunch article on the subject:

As for the brain-dead commentators wondering if LinkedIn’s IPO represents a bubble, somewhere Hoffman has to be laughing and shaking his head again. What part of spending a decade of building a business with more than 100 million users that no one hyped, that represents one of the few large-scale working examples of a freemium business model screams “BUBBLE” to you people? These are the same people that said Google was wildly overvalued when it priced at under $100 a share.

http://techcrunch.com/2011/05/18/at...ckerberg-isnt-the-role-model-reid-hoffman-is/

 

[snoopy]

200 times earnings for linkedin, yeah that seems normal..... NOT.

but hey what does Australia know, still paying 7 times earnings for houses!


*duck*

I think the P/E is more like 600.

 

[snoopy]

TechCrunch article on the subject:

When Google went public it was pretty very profitable (earning around $300million per year), and earnings were growing at 250% per year.

The P/E based on the issue priced was about 80 (and something like 90-100 once it started trading), so I think they are wrong to see this as a comparable situation. The valuation of linkedin is an order of magnitude higher.

http://www.sec.gov/Archives/edgar/data/1288776/000119312504142809/d10qa.htm

 

[DavidL]

The key word you used there was "sustained". Now unless you are talking about Google, Apple, Microsoft, Amazon, etc you're not talking about companies that have a track record that can justify the term "sustained" profitability.

Most online investments (even buying domain names) is "speculative" by nature.

So when big money starts chasing unproven models - you have a speculative bubble by definition.

No what i meant was sustained marketing dollars heading towards the internet which will boost all online businesses whether good bad or ugly. It means that even businesses that might not survive in the competitive established markets may have a chance online.

Look at billboards - typical well-placed suburban bill board costs about $30K/month. When the advertisers that spend their money there realise they can get a far superior ROI online in hundreds of different ways, will that spend be diverted?

Will enough of that money hit the coupon sites for example to justify their valuations? Surely the ROI on a Deal of the Day site is a hell of a lot better than the billboard even if the coupon sites double their fees.

And here lies the question - can you still get an ROI even if many of your investments fail. The majority of people never diversify enough to ensure this in which case the answer is "no" it's not worth playing the game.

Except in domains Some lateral thinking and $1,000 can get you a nicely diversified portfolio.

 

[Chris.C]

but hey what does Australia know, still paying 7 times earnings for houses!

It's not an issue that people are buying houses that are 7 times their household earnings - the issue is that people are willing to "invest" in properties that make losses year after year, but they justify it with negative gearing and the notion that the loss is justified by capital gains.

Unfortunately monetary economics 101 isn't taught in schools.

A business that makes a loss year after year is unsustainable and should not be invested in. Of course simple logic is ignored when it comes to the mania phase of a bubble.

When Google went public it was pretty very profitable (earning around $300million per year), and earnings were growing at 250% per year.

Exactly. It was actually a functioning business (ie it was profitable).

 

[snoopy]

It's not an issue that people are buying houses that are 7 times their household earnings - the issue is that people are willing to "invest" in properties that make losses year after year, but they justify it with negative gearing and the notion that the loss is justified by capital gains.

Historically it has been profitable though.

 

[snoopy]

Just read this comment which really struck me,

“It is perhaps unsurprising that some commentators have seen these rapidly growing valuations of social media sites as indicators of a bubble developing in the subsector, but the evidence from listed technology companies does not support this,” said analysts at PwC in a research note published on Monday.

PwC said the valuation of social network enterprises can be based on an alternative measure they call ‘value per user’, whereby social media valuations are compared with telecoms operators and broadcasters.

http://www.ft.com/cms/s/0/3558809c-8557-11e0-ae32-00144feabdc0.html#axzz1NEfbZciS

That sounds like real bubblenomics talk to me, I can't remember reading anything like that since the year 2000 where people sought alternative methodologies to try and value companies.

 

[Chris.C]

Historically it has been profitable though.

Only because the broad money supply has increased, largely fuelled by the increase in lending of banks.

People need to remember the old economic saying by Milton Friedman "inflation is always and everywhere a monetary phenomenon" meaning that inflation is a result of increased money supply.

The problem is when the increase in money supply is based on debt, but these debts inevitably must be paid and when they are you have a contraction in money supply which creates deflation, thus popping the bubble that was being sustained on the premise that "capital gains" would justify the investment in the long run.