Last time, the dot-com boom was driven by a frenzy over gaining eyeballs. Valuations went through the roof well before revenues.
This time the hot companies are growing real revenues remarkably fast. The WSJ noted how much faster the leaders like Groupon and Zynga have raced towards $1B in revenues, much faster than in prior tech booms and perhaps the fastest in history:
Groupon’s revenue in 2010 rose more than 22 times to $760 million in its second full year since its daily deals site launched, up from $33 million in 2009. Zynga, the maker of online social games like FarmVille scored revenue of $850 million in its third full year in 2010, more than triple the year before, and Facebook’s revenue rocketed to as high as $2 billion in 2010, its sixth full year.
Their ridiculous revenue growth rates actually rival those of the four largest Internet companies–Google, eBay, Yahoo and Amazon.com ...
Compare all of this with the software industry. [L]ess than one-third of the nation’s top software companies reached $50 million in annual sales in six years or less – and the fastest to $50 million, Novell, took three years. Microsoft crossed the $50 million barrier in eight years; Oracle, 10 years.
It should be no surprise, then, that Facebook has crept back to a $70B market cap in private trading, and JP Morgan just raised a $1B fund to buy into the private market of shares for high-fliers, beginning with Twitter. Something big is brewing, and the smart money is leaping in.
The tech trade press is beginning to figure out that these valuations fit within normal metrics, assuming the incredible growth continues.
It is not 1999 all over again. Not yet.
It is too facile to knee-jerk and call it a bubble when we have revenue growth of this magnitude by the leading social companies.
Yelnick, I hear your message very loud and clear.
Please advise how a retail investor like me can participate and invest in this theme. Thanks a million.
Posted by: Edwin | Wednesday, March 02, 2011 at 04:35 PM
I think the market is going to double top Yelnik - really close to 1343. The futures, Asia, should have sold off tonight - and they are holding - 10 year notes are holding.
Maybe week 3 of March - maybe in that time frame.
If it does double top, what a great sell. If it does not and continues south - well, that is possible too.
Joe
Great post Yelnik - a good read.
Posted by: joe | Wednesday, March 02, 2011 at 08:39 PM
And these companies produce coupons and internet games. The world has gone mad!!!!!!!
Posted by: MHD | Wednesday, March 02, 2011 at 09:02 PM
Edwin, hard right now for retail to get in, since these companies are largely private. Maybe at some time we will fix out financial markets to enable small IPOs again, which would greatly increase the opportunities to get in early; but for now you have to wait for them to start going public at a much later stage and higher valuation. Demand Media (DMD) is out; LinkedIn and Pandora should follow. Later this year I hope to see Skype, Groupon and Zynga get out. And then next year the biggee, Facebook.
Posted by: yelnick | Wednesday, March 02, 2011 at 09:39 PM
Joe, the pattern today looks like a classic sideways move. The STU sees it as ending as a triangle, which means we have been in a little wave 4. You can count a four-wave (so far) pattern off the recent lower top - the momentary spike to 1333. Implication is a rise at the open tomorrow and then a drop below 1300.
Such a pattern would be consistent with the 1333 level being a wave 2 on the way down, or a wave B of a zigzag, with 1275-1280 in sight (if a zigzag) or all the way to 1225 (if an impulse down).
After this wave down ends below 13000, we should expect another wave 2 bounce to set up a nested 1-2, a formation the STU loves to see. If it truly is a nested 1-2, this current wave down should break below 1294 and do so faster than the initial wave down off 1344, and the subsequent bounce back should be shorter and faster than the recent bounce from 1294 to 1333.
Hence what to watch for is a sharper down & back. A slower move – more sideways – means something else is unfolding. If we bounce all the way back to your double top, the wave pattern would make this corrective move a flat, suggesting higher highs ahead, not a double top.
Posted by: yelnick | Wednesday, March 02, 2011 at 09:59 PM
MHD, Groupon produces much better leads and rings up more sales than other techniques – the places that put out those coupons are delighted. Zynga has captured the time & attention of a tremendous flock of bored & lonely housewives who used to watch afternoon soaps and now play games with their friends online – the housewives are delighted. So are their friends.
Who is to say whom is more mad? The Mad Men of Madison Avenue who peddle soap via TV, or the mad wives of Cityville who play with their friends?
Posted by: yelnick | Wednesday, March 02, 2011 at 10:02 PM
Consumer spending 'Dead & Flat'--------
http://www.screencast.com/users/MammaB/folders/Default/media/df30810e-78e1-4131-98ce-2d081be995f4
Unemployment 'Up'-----------------
http://www.screencast.com/users/MammaB/folders/Default/media/b8966538-448b-4067-a2e6-769d64f54c13
----------Invest Accordingly------------
Neo-Mamma
Posted by: Mamma Boom Boom | Thursday, March 03, 2011 at 06:56 AM
Neo-Mamma--
I don't think it is profitable to invest based on consumer spending or unemployment.
No correlations there.
Posted by: be careful | Thursday, March 03, 2011 at 07:57 AM
Is Neely Still Short ??
Posted by: Hank Wernicki | Thursday, March 03, 2011 at 08:43 AM
Hank, Neely's short call made money, and he raised the stop yesterday – we are still below his stop level.
Posted by: yelnick | Thursday, March 03, 2011 at 09:12 AM
>Hank, Neely's short call made money, and he raised the stop yesterday – we are still below his stop level.<
? ..... I think you mean: at one point it was in the money, but he has now raised his stop.
Posted by: Mamma Boom Boom | Thursday, March 03, 2011 at 10:04 AM
Hank, if you think Neely is short I shudder to think what you consider tall.
Has anyone here tried the fade Prechter method? Or the fade Neely method? I'm guessing no. You'd be sipping colads on your own tropical island instead of reading this.
Posted by: Best Method to Date? Fade Prechter. | Thursday, March 03, 2011 at 10:19 AM
Thanks !
I really don't follow the gentleman
Just curious ...
Maama what about that gap you referred to over the weekend, still in play ?
Posted by: Hank Wernicki | Thursday, March 03, 2011 at 03:05 PM