If you put ‘Pandora’ into Google News you will get many stories with the words ‘bubble’ and ‘bursting’ in the title. That’s because Pandora (it’s basically an internet radio station) did its IPO last week at $16, rose to $26 before falling back to $13.4 ie below the IPO price. I should point out that even at this price Pandora has a market value of >$2b (and losses of c$18m)
Long term readers of HotNews in the 1990s and more recently HotViews will know my views on both the dot.com and the current ‘Social/Cloud’ bubbles. But, given some of the emails I have had recently, my views could do with a repeat:
1 – Unlike the dot.com Bubble, when ‘A rising tide lifts all ships’ applied, the Social/Cloud Bubble has not really affected the valuations of other tech stocks. That is GOOD. I just hope the market will not do its normal ‘knee jerk’ when the Bubble bursts and mark everyone down. But I wouldn’t bank on it. That’s the real downside of Bubbles.
2 – The Bubbles are only in valuations. The Dot.com revolution was both real and, in almost every way, understated at the time. I believe the same applies to the current Social/Cloud ‘revolution’. It will make as much of an effect on IT in the next 10 years as the internet has in the last 10 years.
3 – But, we are undoubtedly in a valuation Bubble. Of course, there will be a few long term winners. I happen to think Facebook will be one of them – but not at any price. But, just like last time, the vast majority of Social/Cloud IPOs will soon be underwater (or sink without trace).
4 – Of course there is real money to be made in any Bubble. But you must Get in and Get out quick – just like last time. If that’s your idea of investing – well, I’ll leave it to you. I am and always have been a ‘Long’ investor and I can’t change the habits of a lifetime. Anyway, I’ve been very successful at Long investment so why should I? My Capita, Apple, Misys, Autonomy, Sage etc share certificates were written in quill pen…
5 – What is really sad about the Social/Cloud valuation Bubble is that when it bursts (as it surely will) it will not only take some of the best long term investments with it but it will then become EVEN harder for sensible, new tech companies to raise funds – be it for start up or development.
Most observers credit me with calling the Bubble right in 1999. Some think that all I am interested in is calling the Bubble right again in 2011. But this is far more important than ‘me’. I actually care about the industry I have worked in for over 45 years. It is ill-served by Bubbles and ‘get-rich-quick’ merchants. The sooner this one deflates the better.