Tag Archives: asset bubbles

could this be the beginning of the end of the social media mania?

I’m kicking myself for not following my instincts and shorting Yelp (YELP) before it announced utterly rancid earnings last Thursday. For years, the only thing that has mystified me more than Yelp’s business model has been its enduring popularity with Wall Street. As I type, I’m looking at a pile of recent analyst reports with absurd price targets for the company. I like to save these kinds of laughably optimistic reports. It’s a hobby of mine. I’ve still got a glowing buy recommendation for Enron dated only days before the energy behemoth imploded.

For all my doubts about Yelp and other social media stocks, there’s a good reason I have not shorted any of them up to now. It’s just too risky to bet against companies in the midst of a secular mania–and make no mistake, that is exactly what has lifted Yelp, Twitter, LinkedIn and their ilk to stupidly large valuations that they will almost certainly never live up to.

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1999 redux?

As I write about in the book I’m finishing up (it’s due out late this year or early next year–stay tuned for more details!), I’ve lived through a number of asset bubbles, or manias, in my career. By far, the most maniacal of these manias–and the biggest one in the history of capitalism–was the dotcom craziness of the late-1990s. It was absolute bedlam, and its epicenter was down the road from me in Silicon Valley, so I had a front row seat.

The normal metrics for valuing companies went haywire during those days. Revenues didn’t matter. Earnings mattered even less (because they were usually nonexistent). When it came to pricing a dotcom stock, it was all about “eyeballs”–the number of people visiting a given website.

If that sounds familiar, it should. It’s the exact same way people are valuing the darlings of the latest online mania–social media.

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