Let’s recap where we are.Facebook is valued at less than 10X next year’s revenue for a business with strong network effects, unparallelled engagement, 20% net margins growing 50% y/y, etc. and just a completely unique, era-defining company. To be sure, there are lots of questions about Facebook’s business, and there have been lots of shenanigans around the IPO, but the point is that a company that everyone thought was worth $100 billion a few weeks ago is now worth $60 billion and still crashing.
Apple meanwhile has a P/E ratio of 14. The S&P 500 has a ratio of 21. According to finance 101, P/E is a measure of expected growth. What it means is the market is telling us that it expects Apple–a company that grew 70% last year and is wallopping the competition in gigantic markets where it’s just getting started–to grow much slower than the average of the biggest (ie slowest growing) companies in America.
We’ve been spending the past few months debating whether there’s a “tech bubble.” This debate got us so irritated, because it’s so indisputable that there’s no tech bubble, that we wrote an exhaustive 6,600 word post about it.
But it occurs to us that the bubble debate is a sideshow, or rather just a manifestation of something much broader and real, and it’s that everybody hates tech.
There’s just no other explanation for Apple’s P/E at 14.
And it’s a great explanation for what happened to Facebook’s stock: a lot of people thought there was a tech bubble and they thought they could play it. They thought they could buy Facebook stock at inflated prices on the secondary market and that because it’s a bubble some retail sucker would come along and buy it at an even more ludicrous price. It’s what happens when a lot of people think there’s a tech bubble but really everybody hates tech: a couple things get bid up by people thinking they’re going to sucker other people and then it crashes. In a weird sense, the people who bid up Facebook hated tech as well, because the reason they were buying it was because they thought they could sucker someone else into buying something worthless, not because they thought Facebook was intrinsically valuable.
Today we have the news that after Facebook’s IPO Kayak decided to pull its own IPO, because of the way Facebook’s been crashing. Now Kayak is a flight search engine–it’s got nothing to do with Facebook, or even “social.” It’s in travel which is one of the most lucrative, tried-and-true verticals in the internet business. The only way pulling Kayak’s IPO after Facebook’s IPO makes sense is if Facebook’s IPO made Kayak realise that everybody hates tech.
And it’s easy to see why everybody hates tech: once burned twice shy. We had a tech bubble, during which so many things about the future of technology were sold, that even when it’s finally happening under people’s eyes, they can’t believe it. People who were optimistic in the late 1990s got burned, so the smart thing is to never be optimistic, and to always be pessimistic about technology.
It’s the kind of thing that the legendary tech investor Peter Thiel is always harping about: that people have stopped believing in technology. And indeed he’s right. In my bubble post, I noted that the technology sector has a lower P/E than consumer goods. In other words, the market is expecting office supplies and makeup to grow faster than technology. That’s not only self-evidently absurd, it’s incredibly depressing about the state of the world we live in.
So, what does it mean for technology?
- In the short term, it’s obviously bad: as we see with the Kayak IPO, we’re seeing real significant businesses that can’t get an exit because everybody hates tech.
- In the long term, it might actually be great: technology is obviously eating the world, and the fact that that the rest of the world is going to try to undermine it might make it stronger.
Like much else, the fact that everyone hates tech is probably going to make it a lousy investment in the short term, and a great one in the long run.
Previously: Why Everybody Hates Tech →
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