Home prices are up 20% this year in parts of Silicon Valley. Not only is there a tech boom going on, it is accelerating. Employees of companies that recently went public (or are about to) can afford to bid up home prices. Bidding wars are happening again. Homes sometimes sell for more than the asking price. Those who live in areas where real estate prices are stagnant or still dropping can only look at Silicon Valley in wistful wonder.
The current Silicon Valley tech boom is being led by social networking companies, most of whom are enjoying stratospheric valuations, even as their net profits are either non-existent or tiny. Investors, speculators, and hedge funds alike are bidding up stock prices based on estimates of future growth and profits.
If any of this sounds familiar, it should. This is of course of what happened in the previous tech boom with the first wave of Internet companies. Everyone was expecting enormous future growth because surely revenue would continue soaring at near-vertical rates and this would somehow magically transform into whopping profits, although no one was quite sure how.
As examples, Yahoo peaked at over 120 and is now about 15, Broadcom zoomed to over 180 then tumbled to 33, and JDSU spiked to 1,200 (that’s not a typo) then cratered to 16. Those numbers mask a whole lot of pain for investors, and these were companies that survived. Many others didn’t. Their stock price went to zero.
Read on for listings of companies that are considering IPOs (or just have.) Valuations of $15-20 billion for social networking companies that have yet to show a profit are ludicrous. Facebook isn’t worth $100 billion. It just isn’t. And this time isn’t different.