With Priceline's announced purchase of OpenTable coming at a 46% premium to where OpenTable's stock recently traded, the highest for an internet stock since before the Great Recession, following hot on the heels of Facebook valuing WhatsApp at $19B, and Uber's valuation recently topping $18 billion in its latest funding round, I figure it's time to share my thoughts on whether we are indeed witnessing the latest bubble.
First off, how do funding, pricing, and valuations compare to those in previous periods?
Nasdaq closed at 4425.97 yesterday. That's still below its peak of 5048.62 in March 2000, but it far outstrips its post crash high of 2725.16 in the fall of 2007 (and its 2009 low of 1,268.64).
The first quarter of 2014 saw 13 technology IPOs ($2B raised) versus 11 for all of 2009 ($2.9B raised).
And what are the supports for valuations? In other words, are they sustainable?
Still, do the fundamentals really justify the huge run-up in valuations?
While startups getting funded now have revenue and there's often better vetting of management teams, most will not survive. Cash flow and profits still trump revenue at the end of the day — valuations are unrealistic.
I would argue that the dynamics of funding have shifted to a "winner take all' dynamic in which a handful of the most promising companies have such an overwhelming lead in terms of customer numbers and share in their market niches: think Uber, OpenTable, that prices have been decoupled from fundamentals as more and more investors seek to join these deals. That's one point.
But the spotlight on these has also pushed up valuations for others: social media, gaming, mobility, SaaS, and cloud-based startups.
On the funding side, there are more and larger investors and many more sources of non-traditional investors, some "sophisticated" some less so.
There's a shortage of other investment opportunities that can potentially deliver high returns.
So: many more funders and a lack of other opportunities to score a big payday have driven outsize increases in valuations. The bubble is real and particularly active in early-stage companies.
What do you think? Are tech valuations in bubble territory? Why or why not? Tell us about it in the comments section below.