The Nasdaq exchange in New York
The Nasdaq index has surpassed the record high it set at the height of the dot-com bubble of 15 years ago. On 23 April the index rose 0.5pc to 5,060.14, topping its all-time high of 5,048.62 that it hit on 10 March, 2000.
While other exchanges like the Dow Jones and S&P have achieved many highs since the end of the recession, the Nasdaq exchange has constantly fallen short.
But, compared with 15 years ago before it all went awry for the dot-com economy, less than 50pc of companies on Nasdaq are pure-play tech players; 70pc of Nasdaq companies were tech-related ventures 15 years ago.
Nasdaq is the traditional IPO home to major tech brands, including Amazon, Cisco, Facebook, Intel and Microsoft.
However, there has been a trend of late of companies looking at other exchanges. Twitter, for example, floated on the New York Stock Exchange in September 2013.
This time it is different
Back in 2000, many of the high-growth companies were trading at 200 or 300 times next year’s earnings.
However, it is different now. Facebook this week reported revenues of US$354m, Microsoft last night reported revenues of US$21.7bn, Amazon reported revenues of US$22.7bn and Google reported US$17.3bn in the face of tough currency headwinds driven by the strengthening of the US dollar.
However, if there is a place to be concerned about it is in terms of venture capital investments in companies before they embark on the IPO journey, in particular the multi-billion dollar valuations given to so-called unicorns, companies valued at more than US$1bn.
Silicon Valley is crowded with billion-dollar start-ups. Uber, which is valued at US$41.2bn, is valued more highly than 70pc of Fortune 500 companies. Grocery delivery player Instacart is worth US$2bn (it was worth US$400m last year) and Pinterest is understood to be worth US$5bn. Collaboration software player Slack is valued at more than US$1bn having raised US$120m.
The US has just seen the biggest Q1 venture capital investment spree in 15 years, with some US$13.4bn invested in 1,020 deals.
In what is the biggest funding quarter since the first quarter of 2000 – when the dot-com bubble of the day burst – investors threw 26pc more money into deals compared with the first quarter of 2014.
The investment figures were included in the MoneyTree report provided by PricewaterhouseCoopers and the National Venture Capital Association using data from Thomson Reuters.
Some 12 deals during the quarter passed the US$100m mark.
One-third of deals were late-stage funding, going into rounds with unicorns like Slack and Uber.
Software start-ups attracted 42pc of the venture capital spend in the same quarter, up 21pc on Q1 of last year.
The next biggest sector for deals was biotech, with US$1.7bn going into 124 deals.
But if this is a second dot-com bubble …
If there is a second dot-com bubble it will involve the mass slaying of unicorns, whose value now exceeds traditional companies, despite having no assets to speak of.
If there is a second dot-com bubble it will happen outside the public markets and more than likely will involve venture capitalists discouraged by the widening window for a return on their investment and pressure to put greater and greater amounts into firms just to stay in the game.
It will be a case of who blinks first.
In a recent interview with Siliconrepublic.com, entrepreneurship professor and author John Mullins from London Business School put it well: “I think it is likely that we are in a bubble. But when you are in one nobody knows when they’ll end or how high they’ll go and money will be made during that bubble as prices for assets, in this case the shares of young companies, go higher and higher. What goes up also goes down in the stock market and we just don’t know when.
“I don’t have a sense of when the valuations will fall off but I think it is hard to believe that Airbnb is worth more than any of the largest hotel chains, for example, so we’ll see.”
Nasdaq image via Shutterstock
