Comments for It's Official: There Is No Bubble

It's Official: There Is No Bubble

2008-07-09T21:35:00Z

Yesterday we analyzed the financials of the 7 publicly traded Internet Big Cos. There was nothing bubbly there, with an average PEG of 1.4.

So the next stop is the "middle 20". These are publicly traded web technology stocks with a market cap over $1 billion. In our analysis below, more than half have a PEG below 1.0, which tends to signal "bargain opportunity" to investors. (caution: of course that is only a starting point for analysis, there could be some real dogs in there). Check out this chart:

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So, it is official - there is no bubble in public Internet stocks. There might be in private valuations, but that is almost impossible to analyze accurately without access to hard data on late stage VC valuations.

Anecdotally, it does look like private valuations are higher than public valuations. That is a very odd reversal of normal market rules and will create problems at some stage - the shares have to be sold to somebody who will pay a higher valuation.

A reminder to participate in our weekly poll, about the top Internet companies:

Comment from Oliver Taco on 2008-07-09

2008-07-09T23:06:04Z

I assume you're kidding, right?

Well, you may be right given the wretched P/E and the astoundingly low market caps in general.

Take, for example, WebMD. It has already, by my calculation, lost 99.999% of investor value over its lifespan. Not a lot of downside left.

Akami, Monster, the list goes on.

-OT

Comment from Tony on 2008-07-09

2008-07-09T23:13:45Z

The market's been tanking for months in ALL sectors. It's at the lowest point in over 2 years. And the fed just announce today the hard times will probably continue well into 09'. I think the only claims of a tech bubble were happening last year, and it was only a VC bubble, since most internet startups don't really make it to an IPO anymore. The only bubble I can think of now is in energy speculation... of course the term bubble suggests that it'll pop, which I don't know is true in regard to oil prices.

Comment from JJ on 2008-07-09

2008-07-10T01:03:49Z

Democrats wanted a recession democrats got a recession. Economy was just fine before they took control of the do nothing congress.

Ah that's OK, we will all put are success on hold until after the stupid election.

Gas just 2.39 the day Dems took over congress, hell Bush could wage war and keep the economy going at the same time

Comment from AM on 2008-07-09

2008-07-10T02:13:12Z

Interesting poll.

Comment from john on 2008-07-09

2008-07-10T03:29:00Z

Oliver T. is right. you obviously have no clue what the topic.

please stop covering stocks. it undermines the credibility of the site.

JJ - i recommend you look up "dollar devaluation" on this great site i found called google.

Comment from Raskin on 2008-07-09

2008-07-10T04:03:06Z

JJ - are you insane? Oh wait, you're a Republican who still thinks the "liberals" are the cause of America's troubles. I just answered my own question, kthxbai.

Comment from Richard MacManus on 2008-07-09

2008-07-10T04:57:05Z

John (#5), if you click through to Bernard's profile you'll see he has a lot of experience in business. While it's not something we usually cover, I for one certainly enjoy reading Bernard's takes on the Internet market.

Comment from Jim P on 2008-07-09

2008-07-10T05:35:10Z

PEG is Price to Earnings Ratio divided by Earnings Growth Rate. So if a stock is trading at 50 P/E and it has earnings growth of 50%, you would say PEG of 1. But PEG is *not* a good metric in markets like the one we face, where earnings could melt away.

Growth expectations are being seriously ratcheted downwards. Earnings declines, even earnings going negative, are very possible (remember Yahoo in 2001?). PEG becomes meaningless when you face that much uncertainty about earnings.

Conventional valuations, like P/E (preferably averaged earnings over several years) and P/Book, and most important, debt-to-equity, come into play.

Comment from Stefan on 2008-07-10

2008-07-10T08:53:06Z

PEG is just about past data. It would be more usefull to predict future earnings and rate them with AEG or something like this. There is a massive bubble..

Comment from Bernard Lunn on 2008-07-10

2008-07-10T10:33:20Z

It was surprising to me how much heat this post generated. It was a simple post with some facts. I was not covering the economy and certainly not politics, just tech stock valuations.

# 9, actually PEG is forward-looking and # 8 is right - in times of economic turmoil the forward-looking estimates can be way off. However I do not agree that price to book or other balance sheet type metrics are useful for tech stocks.

Comment from fauigerzigerk on 2008-07-12

2008-07-12T07:20:56Z

Jim P is indeed right. There could be an earnings estimates bubble. You should add the growth rates upon which these PEGs are calculated so we can see whether they coincide with our estimates.