For those of you looking at the current “market” action while singing the praises of, “It’s different this time?” May I just make the observation that this new “tune” you’re singing, is actually a remix of a prior 20 year old “one hit wonder” period known as the 90’s “tech bubble.”
Yes, maybe too you, this new slamming sound emanating out of your E-Trade™ account terminal sounds all new and fresh, with a real techno beat, but for someone who was actually there when the original was playing, it’s the same old song and dance rhyming with an auto-tuner.
I made this case a while back using Facebook™ as the example, comparing it to AOL™ of that period, while also pulling today’s cash-burn darlings into focus. Here’s what I said…
For the last 7 years or so one thing has been certain: don’t you dare compare anything “tech” today to back then. What is “back then?’ Hint: the dot-com crash.
Why? Because: “It’s different this time!” Well, my answer to that remains the same: “Sure it is.”
I have been making that case to the screams and howls of many of today’s Silicon Valley aficionados. And for a prominent example, I’ve used none other than the most idolized company of tech today to compare it against the same of the 90’s e.g., Facebook™ and AOL™.
In doing so I have received more vitriolic disdain than if I had tried to openly explain the value of religion at an atheist convention. The only comparison that may top both is trying to explain Business-101 to Ph.D economists. But I digress.
In trying to make the case using true business metrics, as opposed to unicorn and rainbows, fundamental business metrics, and principles, have always fell short for only one reason: The stock price.
When a company has nothing more fundamental than a burn-rate, as opposed to a fundamental such as making net profits? The rising value of the stock price (regardless of its multiple) is nothing more than the fundamental business phenom known as – the greater fool theory. Period.
Then, just like I implied, unicorns have all but vanished from the headlines. And Cash-burners? Let me ask it this way, “How comfortable does one feel about their latest Netflix™ earnings report?”
Now, I know Facebook’s stock price is still skyrocketing, yet, how is your viewpoint of the company as of today, compared to a year ago? Hmmm? Sure, the stock price surges higher every day, so surely I must have changed my own viewpoint since, right?
Actually, I am still of that same viewpoint. As a matter of fact, I hold that view even firmer today than I did back then, the reasoning is simple: Facebook, today, much like AOL back then, is just going through the last phases of stock price euphoria for having achieved last-man-standing status.
When it’ll end? Who knows, but it isn’t like there’s no cracks in the once impenetrable facade for use growth, regulatory hurdles, user revolts, publisher revolts, and more that were once not even a consideration. But now? Stock momentum solves all – till it doesn’t. Just like it did for AOL.
So with that said, I can hear right through my monitors the shouts of, “Ha! You just don’t get tech! And Facebook’s super-powering share price shows just that.”
It’s a fair accusation, but it would also show that one seems to not look back at history and see if there are any similarities that happened prior that may just be showing signs that warrant, at the least, caution today.
What would something like that be, you ask? Great question, let’s look at another that happened in-and-around the same time, when AOL was dominating everything, shall we?
Via the New York Times™ today July 18, 2018: “E.U. Fines Google $5.1 Billion in Android Antitrust Case”
“Google has used Android as a vehicle to cement the dominance of its search engine,” said Margrethe Vestager, Europe’s antitrust chief. “These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere.”
As Mark Twain famously quipped, (paraphrasing) “History may not repeat, but sure does rhyme.”
Via Wikipedia™: “United States vs. Microsoft Corp.”
The suit began on May 18, 1998, with the U.S. Department of Justice and the Attorneys General of twenty U.S. states (and the District of Columbia) suing Microsoft for illegally thwarting competition in order to protect and extend its software monopoly. In October 1998, the U.S. Department of Justice also sued Microsoft for violating a 1994 consent decree by forcing computer makers to include its Internet browser as a part of the installation of Windows software.
Does anyone care to remember what happened not that long after?
Or, maybe it’s just better if we all keep whistling past this graveyard of forgotten classics, right? After-all, just keep BTFD (buying the f’n dip) because…
It’s different this time.
© 2018 Mark St.Cyr