Is it a tech bubble?

Every week a “we are in a tech bubble” article seems to come out in a major newspaper or blog. People who argue we aren’t in a bubble are casually dismissed as promoting their own interests. I’d argue the situation is far more nuanced and that people who engage in this debate should consider the following:

1) Public tech companies: Anyone with a basic understanding of finance would have trouble arguing many large public tech companies are trading at “bubble valuations” – e.g. Apple (14 P/E), Google (18 P/E), eBay (16 P/E), Yahoo (17 P/E). You could certainly debate other public tech stock valuations (there are a number of companies that recently IPOd that many reasonable people think are overvalued), but on a market-cap weighted average the tech sector is trading at a very reasonable 17 P/E.

2) Instagram seems to be the case study du jour for people arguing we are in a bubble. Reasonable people could disagree about Instagram’s exit price but in order to argue the price was too high you need to argue that either: 1) Facebook is overvalued at its expected IPO valuation of roughly $100B, 2) it was irrational for Facebook to spend 1% of its market cap to own what many people considered one of Facebook’s biggest threats (including Mark Zuckerberg – who I tend to think knows what is good for Facebook better than pundits).

3) Certain stages of venture valuations do seem on average over-valued, in particular seed-stage valuations and (less obviously) later-stage “momentum valuations.” The high seed-stage valuations are driven by an influx of angel/seed investors (successful entrepreneurs/tech company employees, VC’s with seed funds, non-tech people who are chasing trends). The momentum-stage valuations are driven by a variety of things, including VC’s who want to be associated with marquee startup names, the desire to catch the next Facebook before it gets too big, and the desire of mega-sized VC funds to “put more money to work”.

4) Certain stages – most notably the Series A – seem under valued. Many good companies are having trouble raising Series As and the valuations I’ve seen for the ones who do have been pretty reasonable. Unfortunately, since the financials and valuations of these companies aren’t disclosed, it is very difficult to have a public debate on this topic. But many investors I know are moving from seed to Series A precisely because they agree with this claim.

5) No one can predict macro trends. The bear case includes: something bad happens to the economy (Euro collapses, US enters double dip recession). The warning sign here will be a drop in profits by marquee tech companies.  The bull case includes: economy is ok or improves, and tech continues to eat into other industries (the “software is eating the world” argument). Anyone who claims to know what will happen over the next 3 years at the macro level is blowing hot air. That’s why smart investors continue investing at a regular pace through ups and downs.

6) The argument that sometimes startups get better valuations without revenue is somewhat true. As Josh Koppelman said “There’s nothing like numbers to screw up a good story.” This is driven by the psychology of venture investors who are sometimes able to justify a higher price to “buy the dream” than the same price to “buy the numbers.” This doesn’t mean the investors think they will invest and then get some greater fool to invest in the company again. For instance, at the seed stage, intelligent investors are quite aware that they are buying the dream but will need to have numbers to raise a Series A.

7) No good venture investors invest in companies with the primary strategy being to flip them. This isn’t because they are altruistic – it is because it is a bad strategy. You are much better off investing in companies that have a good chance to build a big business. This creates many more options including the option to sell the company. Acquisitions depend heavily on the whims of acquirers and no good venture investors bet on that.

85 thoughts on “Is it a tech bubble?

  1. I think there’s also an important aspect on overall size/impact on outside pieces of the economy. When a bubble truly happens it not only drives a disconnect between asset prices and underlying value, but it warps the valuation of associated assets.

    I don’t think we’re seeing any of that in tech. I see the argument that there is localized over-exuberance on the early stage for some companies/groups of companies. But it doesn’t extend any farther than that.

  2. Frantzdy Romain says:

    Some economic bubbles leave behind something extremely useful: infrastructure. 
    And hopefully that infrastructure isn’t broken down, but consolidated, and reused.

  3. i would beef most with #5. macro trends are just as foreseeable, if not more so, than sector-specific trends. it is clear money supply is expanding and that previous expansions of money supply have been followed by bubbles and that current debt levels are unsustainable and cannot be fully serviced without currency devaluation or debt cancellation.  

    P/E is not the only metric by which fair valuation can be determined. the rate of apple’s price appreciation is unsustainable, doubly so when one considers its market capitalization. 

    stocks are drawing capital that is seeking safety. the bond market is weak and people have to put their money somewhere, and so they are looking for long-term safety. 

    i think the social media bubble will pop sooner rather than later, perhaps after facebook’s initial pop. and, let’s see if apple can get back above $640. the hedge funds and goldman will then go to the next sector to blow a bubble in.  

  4. great post Chris. Zynga trades at something like 13x pre-tax cash flow when you back out the $1.5bn of cash they have. that certainly doesn’t seem like a bubble valuation either.

    i do think there is more money sloshing around the tech/internet/mobile sector now than there has ever been. and that is impacting valuations across the board. 

    the question is if this is temporary or the “new normal”. i guess we will find out.

  5. Well said Chris, besides these days an investor does not need many successes in their angel portfolio to out perform other asset classes available.   

  6. Valid points overall, but I think that #2 and #3 are the key ones that make this feel like a bubble. I don’t know anyone who doubts that, strategically, Instagram was worth 1% of Facebook, if only from a defensive standpoint. It’s the $100B FB valuation that is more open to debate. 

    For #3, I do think that the mega-VCs are distorting the playing field a bit. In many ways, they drive entrepreneur behavior away from building a revenue-producing business and towards gaining an early exit.Does that mean we’re in a bubble? No. But it does mean that valuations for the premier startups are definitely distorted imo.

  7. Everyone focused on the valuation for Instagram, but there’s no doubt that FB, notwithstanding its massive user base and predicted mkt cap, was seriously spooked by a 12 person start-up.

    The valuation merely reflected just how spooked FB was…

    So the game would appear to work both ways: startups can come from nowhere and be worth billions in a few years, but the same market mechanics might also leave them vulnerable to other younger companies (cf Zynga / omgpop).

    This is the “creative destruction” that your partner Albert frequently talks about, and could perhaps lead to less earnings  visibility on internet-based companies, which in turn would mean lower than average multiples.

  8. So, what would be the warning signs if we *were* in a bubble?  This is a great argument for why we’re not, though point #1 focuses on a handful of examples, and point #2 is a counter-point to a single counter-example.  

    What about the Pinterest, Evernote, Dropbox, Spotify, Airbnb’s of the world? If Foursquare raised at a billion dollar valuation, would that signal a bubble?
    In neither this piece nor Bilton’s has anyone made an argument that’s falsifiable.

  9. Recently Amazon bought Kiva systems for 800 million. They build solid robotic technologies for 10 years. A Photo upload tool is valued more than that. Valley is Valley is Indeed in a delusional bubble. People can always say VC guys are smart and they choose after careful evaluation. They have a herd mentality and do all investments on a relative basis but not on absolute terms(which is the cause of the bubble)

  10. I was just commenting to semil post on tc about this point… bubbles are a reflection on times when big “inflection points” of wealth creation happen… that’s been my 25 yrs experience.  That being said every major wealth creation opportunity offered to entrepreneurs created massive wealth and jobs every time – and with that bubble conversations happened every time.   Are we in a bubble I say yes and yes is good because there is big opportunities that world class and newbie entrepreneurs are chasing… that’s a good thing… Venture follows entrepreneurial trends… it always has and always will…and with the changing times the tactics to pursue opportunities will change with the times..

  11. DanielHorowitz says:

    Nice post. 1. Do you really think 17 P/E is reasonable? I think one can make a case for any of these large cap tech stocks being overvalued. Can we really predict what their cash flows will be like in five years? . They might be significantly less than today. These incumbents are being attacked from every angle. 

    2. I agree. Regardless of whether the Instagram purchase is smart or not (I think it is) a handful of higher or irrational valuations do not make for a bubble. 

    3. I don’t think seed stage valuations are on average too high. What about the 99% of angel/seed investments that aren’t in popular tech blogs? This feels like a massive availability bias.

  12. But surely 3 is going to be (if there isn’t) a main cause of a bubble? Dumb money jumping in, raising valuations across the board, hyping everything up, funding more and more ideas which have no clear monetisation strategy but *might* hit it big.

    Along with 3 though, with the advent of more and more seed-only rounds and the “fail fast” mentality, wont that mean the pressure to raise an A round is taken away, meaning one of the main drivers to quickly achieve some KPIs are taken away, pulling down the cash with it?

    I agree that Instagram being bought by Facebook isn’t representative of the market, but what about the fact they were raising at a $500m valuation? Where did that number come from? Zero revenue on the balance sheets. Surely it’s a sign that valuations are wildly outweighted, which, although it could be a false-positive, would be a signal that the hype machine is pumping once more?

    The issue for me is that I look at the valuations being thrown around and I just don’t believe the companies they’re attached to will still exist in 10 years time…

  13. too bad I’m nowhere near as rational as Chris in discussing this topic / Nick Bilton’s post. however, I’m happy knowing that irrational flame-baiting and ALL CAPS tweets have a place in the universe, if only in the circular file.

    Chris: you’re a better man than I, Gunga Din.

  14. Andrew says:

    Few things.

    Normal people aren’t losing money, first sign it’s not a bubble.

    There’s a huge market (wasn’t before) and huge revenue from a lot of big companies.

    There may be a lot of small companies with no revenue but they aren’t going to IPO any time soon.

    Yes it’s a frothy market but there’s also a huge wave with a market in the billions of people.

  15. Thanks, Fred. Zynga – Yeah, the risk there seems that games are hit driven. But certainly hard to argue 13x cash flows is bubble.

    To me it seems inevitable that there will be a down cycle. The more interesting question is what happens after that. Some of the things happening now seem like good trends (more college students aware of startups as career path vs consulting, finance, law) and some seem bad (gossip-y tech press, non-smart money investing).

  16. Good point. And important to note that thus far the vast majority of money being invested is by VCs, angels etc who (if it is a bubble) can afford to lose their money. Where things get bad is when non-rich people put their saving at risk in the public markets.

  17. I think you have to take those case by case. Airbnb and Dropbox, for example, seem have real, profitable, fast growing businesses. I don’t know the financials of Spotify and Evernote. Companies like Pinterest, Tumblr and Twitter are more speculative because the business models aren’t decided yet. The (reasonable IMO) bet investors are making is like many internet companies before them (e.g. Google) the business models will emerge.

  18. Yes, bubbles require “greater fools” which I don’t think we’ve seen. (Although non-professional investors buying individual tech stocks is a really bad idea in any market).

  19. Great articulation of where we stand, especially your dream vs numbers distinction.

    The binary term “bubble” may be the source of the polarization, since the only two possible answers (yes or no) are plainly wrong. Maybe it’s better to ask -how- exuberant things are getting.

    As for Instagram, note that Facebook is essentially a photo site when you look at raw internet traffic. Most of us – including me – still believe the dream to value Facebook rather than the numbers.

  20. I believe the historical average of the S&P is roughly a 15 p/e. So 17 is a bit higher but hardly bubble territory. For example, in the real estate bubble smart people like Robert Shiller showed that the p/e (sales to rent ratios) for real estate were way higher than historical average. I haven’t seen anyone make a compelling analogous argument about the current tech market (specifically about mature, public tech companies).

  21. tubbo says:

    Are all venture capitalists as ideal as the one you describe in #7? We will have a problem if more people are coming into it for the wrong reasons than the right ones. VCs have an obligation to help startups change the world, but those coming in with the idea of just trying to make a buck off a billion dollar business (like they would with, say, oil or other commodities trading) could cause a problem. Right?

  22. I agree there is definitely a herd mentality at times, and more pronounced now. But going back to Instagram, do you think FB is overvalued or FB overvalued Instagram?

  23. I think reasonable people could argue about Facebook’s valuation. I’m just saying if you want to criticize Instagram’s price you have to argue one of those two ways. That said, I certainly wouldn’t want to short Facebook’s stock. They control one of the two most important axis of power on the web (social and search).

  24. I agree that low interest rates have encouraged new investors to enter tech investing, and that is distorting things somewhat. But at the same time the fundamentals of tech seem very strong. So overall I think it is hard to predict. But at any rate we should be having this discussion using financial data (as you are) and not just giving our opinions.

  25. Information Software and Service Sector – I rest my case
    Total Market Cap 455.2b
    P/E TTM 53.648
    Return on Equity, TTM 15.86%
    Dividend Yield (Last 4 Quarters) 2.46%
    Price/Tangible Book (Most Recent Quarter) 5.763
    Dividend Growth Rate (Current vs. Prior Year) 23.76%
    EPS Growth (Last Qrtr vs. Same Qrtr Prior Year) 44.41

  26. #7 speaks to me personally.

    I’ve been asked about exits for every company I’ve ever been involved with. The actions day to day of good management are no different whether you have an acquisition or a long term play in your mind.

    You just get up every day and work to create value.  Market opportunities determine which way you end up down the road.

  27. For what it’s worth, having both as a part of the conversation today was valuable from an early stage founders POV. :)

  28. There is another class of equities that is, in my opinion, clearly in a bubble: recent tech IPOs.  These companies like Pandora and Groupon — by their own confession — have valuations predicated on stories instead of numbers as you say in #6.  These receive disproportionate attention because of both the novelty to public investors and the story.  But the decisive overall argument against a bubble is the fact that the large tech companies are largely not putting their cash to work, and those that do, like Microsoft purchasing Skype and pursuing Yahoo, are largely criticized for it.

  29. Thanks. Yes, I think reasonable people could argue about Facebook’s valuation. The $100B number probably assumes a new, not-yet-launched line of business. That said, I wouldn’t bet against them.

  30. anthenor says:

    When valuations are going over 10x pre-tax cash flow, yes I believe it is right to start wondering if a bubble is happening.

    On the other hand the right valuation for a company is based on what people are ready to pay for it. I guess Facebook is more than happy with their acquisition of Instagram. They prefer to own it now for a billion dollar than to see it keep on growing and being acquired by Tweeter or Google.

  31. Thanks for a thoughtful look here.  After 2 downturns in 10 years I really believe that there is a pent-up demand for good times in tech.  The public markets are really open now, and despite some lofty valuations, most companies are being valued on by fundamentals (access to users, ability to monetize, and in some cases, gasp, profitability).  I’d be happy with some stability in the markets, since that promotes M&A as an outsourced IP tool.  

  32. I think you can make a case for some tech stocks being overvalued. And indeed many hedge funds are short e.g. Groupon which is why it is very expensive to borrow (I’ve heard 40% interest rate). 

  33. Yes, that was a great post.

    But you didn’t talk about the effect it might have on  late-stage valuations….

    Edit: I took another look and saw that you did.

  34. Foxconn can produce for Huawei, Huawei keeps all the profits in China. Selling the phones 3x cheaper than Apple, they can still afford to pay Foxconn 2x more for the same amount of work. Ergo workers can be less exploited and they can be be paid more producing cheaper Huawei phones than Apple.

  35. When you are b2b its much harder to sell a dream.  You have to sell the numbers, and that’s much harder.

    If there is a bubble where it will be an issue is when you have to sell the numbers. 

    $5M pre is relatively easy with no numbers. 

    $20M pre is doable with little numbers and showing traction.

    $50M pre is hard to do when you have 5 years of numbers to show and they look flat.

  36. Steve Burgess says:

    FB is overvalued.  Of course, the piper will play in just a few weeks and we’ll find out what the market thinks.

  37. sorry – not personal, not meant ad hominem. just offering that its sometimes hard for insiders (you, me, anyone) to see outside their immediate realms…

  38. I’m just having a hard time with this argument – I don’t think he (or anyone else I’ve seen) is arguing about large, established companies. Some people are questionable about the later-stage *startups* (different from *established companies*), but I think there has been consistent concern about the issues in early stage startups. 

    We are spending a lot of time comparing this bubble to 1999, but I’m pretty certain that they are not similar in any way. The comparison between the two is useful and accurate in the same way that say, the Great Depression is useful for understanding the Great Recession. Which is to say, in limited, critical doses. 

    Furthermore, a bubble is one of those things that is ridiculously hard to prove the existence of during it’s growth period. The entire point is that we won’t see failures until we see them start happening at an alarming rate. I suspect that if we see that occur here, it won’t be companies that are failing spectacularly, but investors. 
    Again, all these points are related: bubbles happen most frequently when the value of the goods is not clearly discernable. This is a period of uncertainty – no one really knows how the social internet will play out, just like no one knew how big search or e-commerce would be in the 90’s. Now these quantities are a bit more known, so it’s harder for these companies’ values to inflate as much. 

    @cdixon:disqus raises the point in this thread that startups are now being seen as a viable career path, and I suspect that these things are fairly related. However, it makes a certain amount of sense that during a bubble, accompanying the over investment of [monetary] capital into a space is the over investment of human capital into the space. My concern is that being geared towards a career in *startups* is as worrisome as a career in *finance.* Both do certain crucial things, but more important than either of these things is a commitment to certain types of work. I am far more interested in a generation of people that have educated themselves to create, build and innovate – whatever institutional vehicle that facilitates it best for the skills that they acquire. 

    Still, as painful as bubbles and bubble bursts can be, they’re crucial to innovation – the cyclical nature of Silicon Valley is that they take on industries with high uncertainties, whose value is as of yet undetermined. And it takes that exploration to determine what works, and what those values are – I compare it to the periods of boom and bust in evolution, that result in diversity and efficiency in turn. (I once tried to write an ill-fated college paper on this). 

    Sorry for the big wall of text, but. http://xkcd.com/386/

  39. The “creative destruction” is why I don’t see Facebook being worth $100 billion. I could rephrase that by adding, it is worth $100 billion – assuming that competition didn’t exist.

    +1, good point. The issue is that as far as the speculation goes, it’s impossible to know – no one knows how competitive other companies can be with Facebook, or how much the network effects protect it.

  40. Can I just build a company that’s like an octupus? We can be slow and clumsy and HUGE in the middle, but then have lots of little tiny, agile tentacles. 

  41. I completely agree, when I say, “magnitude of failing companies then was giant,” I am referencing the scope of failures on the public market, failing quickly, with countless investors left with nothing.

    I agree on pretty much all of your points. Except the last, unless you have a paper to explain ;) 

    And the wall of text is appreciated.

  42. Guest says:

    So…um….if all the real businesses are 14-18 P/E, and FB is roughly 100 P/E, couldn’t this one mega-uber-propping-up-others-olith, single handed, take down the entire ecosystem…

    What if FB was all of a sudden a realistically valued $20B company, how would the house of cards fall?

    FB can’t go around buying up every new kid/competitor on the block (at even greater unrealistic margins) to retain it’s status, can it?

    Entropy happens.

  43. One explanation, is that people  are unaware of the revenue these companies are generating. They read about the Valuations, but not the price. 

    For instance, in hindsight, except for Microsoft’s strategic investment, the secondary market trades, and the seed round, FB  never traded above 17x revenue. 

    Facebook (2004) 166x Seed.   1st ads in May booked  ~$2,400 revenue. In June, Thiel invests at $5M valuation  

    Facebook (2005) 17x  A. $6M revenue               $100m valuation 
    Facebook (2006)  10x B. $52M run rate on $525 pre 
    Facebook (2007) 100x C. $150M revenue at $15B valuation
     Facebook (2009) 13x  D. ($750M revenue at $10B valuation
    Facebook (2010) 17x  E. ($2b revenue at $35B valuation)
    Facebook: (2011) 30x  F   ($3.3B run rate on a $100B valuation) Facebook (2012) 23x IPO   $4.2B revenue on $100B IPO valuation)

    Maybe in the future, companies should stop reporting, 
    to Tech Crunch,  “valuations” and amount raised, and just report Revenue multiples.

  44. Nice job bringing actual data to a finance discussion (seriously). To add to your point: many of those were preferred shares (lowering the effective multiple), and strategic investments are typically above market price because the strategic investor is paying for relationship in addition to shares.

  45. The relation between evolution, technology, and finance is worth pursuing. For the former two I enjoy Kevin Kelly’s thoughtful analysis.

  46. Yup.

    We’ve seen it, look at Yahoo and AOL. They are not the superpowers they once were. Even physical companies are impacted by the disruption of software, Blackberry and Nokia vs iOS & Android.

  47. The network value of Facebook is limited by my tolerance for connections. Without interest beyond familiarity, for me that ends up being a hundred or so friends, and checking it briefly a couple of times a week. I value that time at ~5 dollars. If I’m the average user (maybe?) and there are a hundred or so million that value their time as I do, then Facebook is delivering a half a billion dollars of value a week. Assuming they can capture 20-100% of that value puts ther P/E at a much more cautious ~4-20

    The $5 is the few minutes I connect with fellow users. The 100 million is based on folks who are willing and able to pay for that experience.

  48. If you have the right people I think it’d be possible. It might be impossible to get all of the right people together and aligned though. And the key is having someone with a solid end vision (at least solid intent behind here they are going).

  49. I enjoyed reading through this vigourous discussion however I would just like to point out that if you map growth in US GDP over the past 20 years against the level of VC investment on a year on year basis then you will discover that (somewhat suprisingly I would suggest for most readers of tech blogs) the level of VC investment is a lag indicator rather than a lead indicator of US economic growth. In this context the confusion over bubble or no bubble merely reflects what the big economic data has been telling us since 2007. i.e. The situation is complex and even the most experience financial investor is struggling to make sense of the economic chaos arising from the collapse of the US housing market.

  50. Chris, I won’t argue the tech bubble/non-tech bubble aspect. I, too, feel that arguments on the topic should remain numerical — everything else is hypothetical/opinion/speculation. None of which will get you very far when debating finance. I am yet to look at industry numbers, so I will keep my thoughts to myself until I do.

    However, I’d love your take on a few finance-focused points from a recent article by Josh Shinai of MarketWatch (linked below) on Facebook’s value:

    1. In the last four quarters, beginning with the second quarter of 2011, the company has posted year-over-year revenue growth of 107%, 104%, 55% and 45%, respectively. Those are total revenue figures. The figures for ad revenue, meanwhile, paint a similar picture, with corresponding growth rates of 83%, 44%, 44% (again) and 37%.

    Posting 45% top-line growth sounds impressive when you consider that Facebook is now generating more than $1 billion in quarterly revenue. Still, investors shouldn’t ignore the obvious trend: The year-over-year revenue growth in the first quarter was less than half of what it was just nine months earlier.

    2. Facebook’s results over the last two years show a consistent pattern: Advertising revenue surges in the second and fourth quarters, respectively, yet slows or even weakens in the first and third calendar periods. [Me: Hence the sequential dip in quarterly revenue and a year-over-year drop in net income the company announced recently]

    3. In its latest filing, the company pegged the value of its stock price, as of Jan. 31, at $30.89 a share for internal accounting purposes.

    Because Facebook earned fully diluted net income (applicable to common shareholders) of 46 cents a share in 2011, that valuation equates to a price-to-earnings ratio of 67 times trailing-year earnings.

    By comparison, Google Inc. — which many consider to be Facebook’s biggest rival, and which last year posted revenue growth of 29% and net income growth of 14% — ended Wednesday’s trading valued at 20.5 times trailing-year earnings.

    To justify its much-higher P/E, Facebook needs to be posting and forecasting better growth numbers than that.

    http://www.marketwatch.com/story/facebook-sales-growth-is-lumpy-and-slowing-2012-04-26

  51. Ad supported businesses charge customers too. But the customer isn’t the same as the user. In a sense, the user is the product and the customer is an advertiser.

  52. Right – that was certainly a feature of the last bubble that was… unfortunate. Still, the idea that current early-stage investors are over-valuing the companies they are funding isn’t ludicrous.

  53. JamesHRH says:

    GRISMTER – being picky here – outcompeted is unfair.

    Proctor & Gamble have all but given up on innovation: and they just finished one of their best decade’s ever.

    Being huge isn’t losing & if it is, feel free to put me at the front of the Loser Line.The Gram has merely 25x FEWER users than the Book. Outcompeted? For the Book, being outcompeted would have been letting MS, GOOG, TWIT or YHOO get it.

    That;s their competition.

  54. I think internet companies today compared to the dotcom years are financially in a much more solid state because at least most of them generate large top-line revenue. Regarding the negative profits, I think all these companies intentionally trade-off profits for growth because investors place a higher premium on growth than profit.

  55. 1 to 50? Come now, let’s do some basic math.
    Even if your P/E ratio is 1 million, at least you’re still doing better than break-even. Back in the 1999 bubble most of the new IPO dot-coms had negative P/E ratios.

    The basic value of a company is the time-discounted value of future earnings plus assets minus debts. Pretty simple. P/E is a fun stat but not useful without considering growth. It’s a lagging indicator while price is the prediction for the future.

    Apple’s P/E is low because their growth is predicted to be low (but with a high beta). It’s already baked into the price. The scenario you propose is a possibility, but nearly as likely is that Apple continues growing at its current rate. If you don’t explore or acknowledge the continuum of possibilities, you are either a tout or an amateur investor.

  56. JamesHRH says:

    Last line could be Dino biting own tail b/c it’s on fire big Fella.

    I didn’t say P&G wasn’t innovative – I said they gave up on inside innovation. In essence, they expanded their m&A activities to co-fund expansion of new
    products.

    Dig deeper into their results or read a lot of Lafley interviews & he has said that they were getting beaten at innovation – so they stopped trying to do it all themselves.

    The biggest P&G hits of the 21sy century – things like Swiffer – were invented outside the walls of P&G.

  57. Yup..The difference between a 17 and 15 p/e is only a 13% period of earnings growth…in commodity widgets that may be hard, but in tech… 

    The foundation of these values is actual money. It can’t be compared to the foundations behind real estate prices, which are supply, demand, and psychology.

  58. Of course considering growth is the most important thing. That is why I find it ridiculous to do calculations on P/E etc when the core of the issue is that 70% of Apple’s current profits comes exclusively from the iPhone, and that the iPhone quite simply cannot continue to be as profitable, not realistically as much better and cheaper Android alternatives are to absolutely dominate the market, regardless of theories on carrier subsidies, that business model worked for a few years, now it’s imminently going to be over. Ergo Apple’s decline is inevitable. I’m not going to be able to tell you exactly when the peak is reached and exactly how fast the decline is going to happen, my guess is within 1 year the peak is reached and within 1 year after that Apple’s stock worth is halved.

  59. NOT MATTER WHERE INNOVATION COME FROM. IF IT DRIVE COMPANY, IT DRIVE COMPANY.

    GO OUTSIDE FOR INNOVATION ITSELF IS INNOVATIVE WAY TO SHORT CIRCUIT USUAL PATTERN OF STAGNATION.

  60. JamesHRH says:

    See comments above w GRIMLOCK re:P&G.

    Syndication is a rare historical situation where an entirely new distribution channel sprang up and recycled assets.

    Really unusual.

  61. Seed financing in the consumer tech especially in SoLoMo seems to be where the bubble is. More companies trying to go viral, socially fatigued consumers, unclear business models.

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