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Have we entered another tech bubble?

posted by LaminatorX on Saturday February 22 2014, @12:00AM   Printer-friendly
from the It's-like-a-telegram-but-on-a-phone dept.

siliconwafer writes:

"Facebook's purchase of WhatsApp has generated a lot of noise in the financial and tech industries, with some calling the purchase price 'down-right silly' and 'jaw-dropping', and others have said the price is fair, but question the strategy. Is the purchase price evidence that we're entering entering another tech bubble reminiscent of the 1990s? Some say no, while others believe that a bubble may exist only in social media, given that the Global X Social Media Index ETF has outperformed the NASDAQ over the past year."

 
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  • (Score: 5, Interesting) by lubricus on Saturday February 22 2014, @08:01AM

    by lubricus (232) on Saturday February 22 2014, @08:01AM (#4790)

    Is 19 Billion dollars a lot to pay for an app? Absolutely.

    Is this evidence of a bubble? I don't think so.

    Matthew Yglesias at Slate provides some insight: [slate.com]

    Zuckerberg’s shares carry special bonus voting rights, giving him 57 percent of the votes in any shareholder meeting.
    Structuring Facebook as a personal dictatorship gives its CEO an unusual set of incentives that bias the company in favor of big acquisitions. ... He even gave WhatsApp CEO Jan Koum a seat on the board. And why not? The board is meaningless anyway. Once the deal is sealed, WhatsApp will be part of Facebook, and as such, it will be 100 percent under Zuckerberg's control.

    Contrast that with some other things Facebook could do with $19 billion. A special dividend, for example. If Facebook were to flush a bunch of cash out to shareholders, Zuckerberg wouldn't get 100 percent of it. He wouldn't get 57 percent of it either. He'd get about 28 percent of the money, reflecting his slice of the overall Facebook stock pie. ...

    So the 19 Billion is not the *market*'s valuation of WhatsApp, it's Zuckerberg's valuation of a competitor + cost of additional growth.

    Is there a "tech" bubble? If you look at other tech companies, P/E are all over the place:

    Facebook: 105
    Amazon: 593
    Google: 33
    Microsoft: 14
    Apple: 13

    For comparison, the P/E for the SP500 is around 10.

    As with any sector, high P/E's seem to be associated with perceived potential future growth.

    You could argue that these are very different companies, but that's the point. Pointing to a single acquisition orchestrated by basically a single person's decision, and screaming "SECTOR BUBBLE!" misses
    the diversity.

    PS: if definition lists in comments are supported, they should be styled in a useful manner.

    --
    ... sorry about the typos
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  • (Score: 1) by TheloniousToady on Saturday February 22 2014, @10:39AM

    by TheloniousToady (820) on Saturday February 22 2014, @10:39AM (#4827)

    Good points. Thanks for linking the Slate article, which I read all the way through. However, here's a slightly different take on Zuckerberg's possible thinking.

    What if, instead of dollars, you count your personal "wealth" in terms of users? You're already the wealthiest man on the planet in those terms, but you want more. You already have more dollars than you need, which you don't much care about anyway. (I remember reading that Zuckerberg leads a modest lifestyle - how much can you spend on hoodies anyway?) Therefore, it would be entirely logical to trade dollars for users, even at an exchange rate that doesn't make sense in terms of the normal business calculation of present dollars spent versus future dollars gained. Since you have complete control over Facebook, you don't have to answer to pesky shareholders who might be more interested in future dollars than future users.

    In this framework, the fact that Zuckerberg would only get $0.28 for every dollar returned to shareholders is irrelevant. After all, it's the number of users that counts.