Of course it's a bubble

Marc Andreesen argues it's not a bubble because the big tech companies - Google, Apple - still have sensible P/E valuations and anyway it can't be a bubble if everyone calls it one. Let's look at some counterpoints.

Facebook, Zynga, Zipcar, LinkedIn, Demand Media, Twitter, iwantadoor.com (yes indeed) and yesterday's big story, Groupon.

What makes all these companies signs of a bubble? Everything is priced as if this market has no losers. Everything is priced to win, win big, face no competition, face no meaningful downside risk and not "do a MySpace". 

Facebook is worth a hundred billion dollars (say it three times slowly), maybe, if you assume it is "the social network" now and for ever. Twitter is spending money like it will one day come up with a revenue model. iwantadoor.com is sponsoring slots on primetime TV. LinkedIn and Zipcar don't really make money. Demand Media's profits are an accounting fiction that takes content costs onto the book as an asset and depreciates that asset over five years. Groupon's founders are taking money out like Groupon has no tomorrow.

Whenever anyone mentions the possible downside case to any of these investments, such as some of these companies having returned no profits or generated no material revenue, we get some weird anecdotal response. Amazon had no profits for six years. Google had no revenues, or even really a business model, until a decade in, and that came out of one of those quirky 20% projects from one of the engineers.

Guys, these are the exceptions. On a case by case basis, some of these valuations may well turn out to have been defensible. Taking that approach across the board, it's nonsense. You can't price every media tech float as if it's the next Google and assume there will be no MySpace, no Boo, no Pets.com. Thinking you can is what makes this a bubble.

(Picture from Frank Bonilla on Flickr)