Last night, billionaire tech investor and Netscape co-founder Marc Andreessen dismissed financial observers worried that the booming tech market is overheated and may be approaching a dot-com-era-like bust. But in the hours following his talk at the D9 conference in California, even some of the most bullish tech pundits say the Mosaic co-author is getting a little too cocky for his own good.
So why's Andreessen so certain the sky high valuations of Facebook and LinkedIn aren't at all worrisome? He gave two principal reasons. First, we can't be in a tech bubble because everyone thinks we're in a tech bubble. "A key characteristic of a bubble is that no one thinks its a bubble," he said, citing the euphoria in 1999. "If everybody's upset, it's a good sign…I hope there are lots of bubble stories." Second, he said we're not in a bubble because the stock market isn't behaving that way. He noted that the price-to-earnings ratios for some of the most successful tech companies were very reasonable, citing Apple, Microsoft and Cisco's p/e ratios.
On Andreessen's first point about the perception of a bubble, TechCrunch's Michael Arrington, who's on record being very bullish on the tech market, says Andreessen is plainly wrong. "Everyone wasn’t euphoric in 1999," he writes. "There was lots and lots of talk of a bubble. See, for example, this 1999 NY Times story title 'Is Frenzy for Internet Stocks a Bubble Waiting to Burst?' Here’s another article in Forbes. And there are lots, lots more."
"As with recessions, any ambitious economist will predict a bubble every year," continues Arrington. "No one remembers the misses, but you get an awesome book deal when you’re finally right. 'Declare a bubble early and declare it often,' as I said in my previous post. But Andreessen's argument that there was no talk of bubbles in 1999 is just wrong."
As for Andreessen's second point, about price-to-earnings rations being justifiable, All Things D's Peter Kafka brings up a good counter-example. "OK, but what about LinkedIn? It has a stratospheric p/e, after all." In May, the revenue-meager resumé network set its IPO price at $45 per share, which skyrocketed to $100 in the first day of trading. According to Andreessen, who's a LinkedIn angel investor, one example isn't good enough because it would mean "for the first time in equity history, we have a bubble that’s affecting one stock." But Kafka brings up another point. "What about the secondary markets? By some standards, companies like Facebook, Zynga, etc., are trading at very high multiples, right?" Arrington also weighs in on Andreessen's observation that the markets are behaving as they should, saying "there sure are signs, though, that those public markets are aching for a new tech stock bubble."
"Imagine if Facebook went public today. Think they'd hit a $200 billion market cap immediately? They're at $75ish billion today on the secondary markets, so why not?" he writes. "That's the problem. The markets are dying for growth opportunities and they are going to jump on any tech IPO that smells like a winner and price that stock so high that it becomes a loser. The bubble in the private markets today can very easily turn into a real live bubble on the NYSE and Nasdaq tomorrow, and I'm not sure there’s anything that is going to stop it."
To see Andreessen's full remarks at the conference, see the video below: