Insiders Say Market Is Bullish, Not Bubbly

When I was in Japan, I was told not to translate yen into dollars – it would only make me angry at the price of everything. Maybe that’s the type of rationality we need here, as comparing company valuations and revenues will drive you batty.

Don’t, for example, look at these numbers and balk:

Facebook, if moderately bubbly, is worth $15 billion, roughly half the value of Yahoo, with 32 times less revenue. If out-of-your-mind bubbly, Facebook is worth $100 billion, half the value of Google (and possibly a Google killer – if such a thing could exist), which is worth more than IBM, which pulls in eight times the revenue of Google.

And that makes MySpace, with a large nation’s worth of membership and soon-to-be open platform, worth how much? More than $580 million, for sure…as much as Google?

It’s hard to argue that Google isn’t worth it – well, maybe not the $14 trillion suggested in some circles. Google is in position to bust more than a few lucrative blocks, encroaching on the turfs of the AT&Ts and Verizons of the world.

But a website with questionable revenue and no immediate plans to file an IPO, much less the ability to take over the known world like Google is doing?

Don’t answer that. Too speculative.

The valuations, some say, are based more on low overhead and valuable audiences rather than revenue. Reaching those audiences, especially younger ones, at little cost, is what drives the inflation…er, not inflation…value.

"From an advertising perspective, brand budgets are increasing every year and new platforms are rapidly emerging to reach the young demographic that can’t be reached through conventional channels," said Chris Redlitz, vice president of sales and marketing for Skyrider, a P2P monetization startup. 

"Blogs, social networks, mobile, gaming, video and peer to peer networks are new channels that reach the Gen Y demographic, and this is generating a significant amount of investment."

Redlitz joins a rather loud chorus of people saying this isn’t 1999 all over again, that this time it’s different. A critic is quick to note that this like when an addict denies his denial, or a teenager swears it’s a love that lasts forever. Nevertheless, the players move ahead.

"I don’t think this is a bubble," agrees Andy Beal, editor of Marketing Pilgrim. "In 1999, companies were throwing around money they didn’t really have. Likewise, IPOs seemed to happen every day, with some wild valuations. This time around, there are solid companies making the deals, giving us a solid platform for continued increased value."

Both assessments are matched even by the mayor of Mountain View, Laura Macias, who presides over the heart of the madness where hundreds of tech startups have opened up shop just down the road from the Googleplex. On Tuesday, Macias confirmed that the climate is different this time around, saying there’s "more substance to [these companies'] products."

And maybe so. Maybe 1999 really was the teenage romance that went kaput as soon as college began and the real world settled around us. Maybe (though it’s hard not to doubt) this is the mature romance we learn to have later (shh, no cracks about the divorce rate, ok?).

The only thing that settles it is time – or a harsh morning sobriety – but until then, Silicon Valley parties on.   
 

Values And Egos Inflate: The Bubble Returns

Bubble. There, I said it. Just two years ago, a half-billion dollars for MySpace seemed a bit on the frivolous side. But now it’s obvious News Corp. got in on something before the rest of the media world caught on, especially as Facebook, with a fraction of the audience, demands a steeper and steeper price.

But, say supporters of these valuations, it’s not just the size of the audience or the annual revenue taken into account, but the margins of profit they bring in. Online properties, especially Web 2.0 properties, are so low-cost to run compared to brick-and-mortar one that it’s not unreasonable for them to sell for as much as 100 times earnings. 

Critics were blisteringly quick to point out Henry Blodget’s unpardonably sinful Wall Street history of inflating values just before the dotcom bust – the term "gasbag" came up in one place, in lieu of bubble. Blodget argued Tuesday that Google shares could hit $2,000 one day.

This number, even as we remember the flack analyst Jim Cramer got flack for suggesting GOOG might reach $800, earned no shortage of scorn (and attention); TechCrunch’s Michael Arrington called for Blodget to be "muzzled."

In an ironic twist, Douglas McIntyre, editor of 24/7 Wall Street crunched numbers suggesting blogs like TechCrunch and The HuffingtonPost were worth upwards of $100 million to outfits like CNet or the Washington Post, as big media organizations look to find less expensive ways to build a loyal, sustainable audience.

Blodget concurred with that valuation; Arrington decided Blodget shouldn’t be muzzled after all; and Howard Lindzon, creator of CBS-owned Wallstrip, thought it quite funny "the lamest asshat on the internet" (he means Arrington) was buying into the hype.

Potshots aside, are we or are we not looking at (or standing within) the next dotcom bubble. If so, will it burst?

Lindzon seems to have his umbrella ready. "We just started another bust in real estate," he tells WebProNews. "This is another side book and may not end until the China Olympics. Obviously the global new wealth is not as sophisticated about the dangers of asset bubbles and it will be especially ugly when it ends."

Cynthia Brumfield, president of Emerging Media Dynamics, Inc., seems to agree these valuations are bubblish, but that’s not necessarily a bad thing.

"I do think these valuations are over-the-top but I don’t think a ‘bust’ is imminent," she said. "For one thing, Facebook and Huffington Post are privately held companies and individual and institutional investors in general will probably be spared the rude smack of any ultimate come-down in value. 

"They might feel a trickle-down effect in the sense that Microsoft, for example, might have to write-off some portion of its investment in Facebook, but that loss will be blended into a very big company. As for Google, investors are already forewarned that it might be overvalued even at today’s prices, and that doesn’t seem to spark much fear."

Even then, eBay’s not so happy about the $2.4 billion they shelled out for Skype – and they were warned rather loudly then. How many overpriced purchases can the major players afford to make?

The answer to that may be relatively simple. There is an echo of Brumfield’s assertion that the Microsofts and eBays of the world can afford to overpay in the words of McIntyre. They can afford it because the cost of running Web 2.0 companies is virtually nil.

"We know that Huffington raised $10 million from Softbank and other VCs," said McIntyre. "With the election year about to begin, Huffington’s pageviews, advertising, and value are only going to rise. Is $100 million the right number? No one knows that, but I think $75 to $150 [million] is not even close to wild, especially given the strategic value that a strong online brand could have for a company like the Washington Post."

An online property bringing $1 million annually, for example, could pull in 100 times revenue because of the relative low cost of operation.

"What people don’t want to look at is the value of these brands and how inexpensive they are to run compared to traditional media. The margin leverage is tremendous."