14 Crazy Facts About The Current Internet Stock Bubble

Tyler Durden's picture

Submitted by Michael Snyder of The Economic Collapse blog,

Shouldn't Internet companies actually "make a profit" at some point before being considered worth billions of dollars?  A lot of investors laugh when they look back at the foolishness of the "Dotcom bubble" of the late 1990s, but the tech bubble that is inflating right in front of our eyes today is actually far worse. 

For example, what would you say if I told you that a seven-year-old company that has a long history of not being profitable and that actually lost 64 million dollars last quarter is worth more than 13 billion dollars

You would probably say that I was insane, but the company that I have just described is Twitter and Wall Street is going crazy for it right now.  Please don't get me wrong - I actually love Twitter.  On my Twitter account I have sent out thousands of "tweets".  Twitter is a lot of fun, and it has had a huge impact on the entire planet.  But is it worth 13 billion dollars?  Of course not.

When it comes to the Internet, what is hot today will probably not be hot tomorrow.

Do you remember MySpace?

At one time, MySpace was considered to be the undisputed king of social media.  But then something better came along (Facebook) and killed it.

It is important to keep in mind that Facebook did not even exist ten years ago.  Yes, almost everybody is using it today, but will everybody still be using it a decade from now?


But the way that the financial markets are valuing these firms can only be justified if they are going to make absolutely massive profits for many decades to come.

Will Twitter eventually make a little bit of money?

Probably, as long as they get their act together.

In fact, Twitter should be making significant amounts of money right now if it was being run correctly.

But will Twitter ever make 13 billion dollars?

No, that simply is not going to happen.  But that is what Wall Street says that Twitter is worth.

The utter foolishness that we are witnessing on Wall Street right now is so similar to what we saw back in the late 1990s.  It is almost as if we have learned nothing from our past mistakes.

These days I keep having flashbacks of the Pets.com sock puppet.  For those too young to remember, the following is a brief summary from Investopedia about what happened to Pets.com...

It's impossible to think of the first Internet era without thinking of the Pets.com sock puppet. He was everywhere and was nearly as well-known as the Geico gecko is today.


That familiarity, in part, persuaded many investors to lay down money in the company's February 2000 IPO (which was backed by Amazon.com). Pets.com raised $82.5 million – but nine months later it folded, due to major recurring losses. Part of the reason for that was aggressive advertising, but the company also lost money on virtually every item it sold. In the third quarter of 2000, Pets.com reported negative gross margins of $277,000. (The second quarter had seen a $1.7 million margin loss.) That same quarter (its last full quarter as an operating entity), the company lost $21.7 million on $9.4 million in revenue.


As for the puppet, he went on to shill for BarNone, which helps people with bad credit histories get car loans. He's still there today, front and center on that website.

Everyone loves to laugh at the poor little sock puppet, but the truth is that the tech bubble that is inflating right now is far worse than the Dotcom bubble of the late 1990s.  The following are 14 facts about the current tech bubble that will blow your mind...

#1 In just a few days, the Twitter IPO is expected to raise close to 2 billion dollars even though Twitter actually lost 64.6 million dollars last quarter and has a long history of not being profitable.

#2 It is being projected that after the IPO Twitter could have a market valuation of more than 13 billion dollars.

#3 Twitter is not expected to make a profit until 2015 at the earliest.

#4 According to CNBC, Pinterest is currently valued at 3.8 billion dollars even though it has never earned a profit.

#5 Yahoo paid more than a billion dollars for Tumblr even though Tumblr's revenues are so small that Yahoo is not even required to report them on financial statements.

#6 Snapchat, an Internet service that allows people to send out messages that "self-destruct", is supposedly worth 4 billion dollars.  But it actually has zero revenue coming in, and many believe that it is essentially worthless as a money making enterprise.  For one extensive analysis by a tech blogger, please see this article.

#7 The stock of Rocket Fuel, an online advertising company, is trading at about 60 dollars a share and it has a market valuation of about 2 billion dollars even though it has never made a profit.

#8 The stock of local business review website Yelp is up 241 percent this year even though it has never earned a quarterly profit.

#9 Fab.com just raised 165 million dollars from investors even though it recently laid off 44o employees.

#10 LinkedIn stock has risen in price by 136 percent since the 2011 IPO, and it is now supposedly worth more than 18 billion dollars.

#11 The head of engineering at Twitter, Chris Fry, got a 10.3 million dollar pay package when he joined Twitter last year.

#12 Facebook's VP of engineering, Mike Schroepfer, earned 24.4 million dollars in 2011.

#13 Office rents in San Francisco (where many of these tech companies are based) are now 23 percent higher than they were at the peak of the real estate market in 2008.

#14 Facebook stock is up close to 140 percent over the past 12 months and the company is now worth more than 120 billion dollars.

And I am certainly not the only one that is concerned that we are repeating the mistakes of the late 1990s...

“When you look at valuations and look at the lack of earnings and revenue, it seems to me much like the dot-com bubble,” said Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc. who helps oversee $10.2 billion. “This market looks a little frothy and Twitter is the personification of a risky trade.”

In fact, as the Wall Street Journal recently noted, we have seen some of these tech stocks crash more than once during the Internet age...

"It's fascinating to me that today's mini-mania includes shares of Amazon, Netflix and Priceline that have previously peaked and crashed before—in some cases they've peaked and crashed twice before," says Darren Pollock, portfolio manager at Cheviot Value Management. "Stocks like these have again captured the imagination of speculators. We're skeptical that there is enough underlying intrinsic value to many of the highfliers to support today's prices."

So how long will it be until the current tech bubble implodes?

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ebworthen's picture

My friend Larry Kudlow is still delusional that the markets are not based on FED QE and bailouts but "fundamentals".

Funny Larry, but I'm pretty sure Ronald Reagan wanted some semblance of the rule-of-law and productive employment.

If not him, I'm sure that the Founding Fathers and my Ancestors did when they scrabbled a living out of the Colonies and the Old West.

Vampyroteuthis infernalis's picture

Why earn an honest living when you can just push fraud. Welcome to 21st Century America!

AlaricBalth's picture

"Twitter is a lot of fun..."
No Mike. Tending a garden and seeing the fruits of that attention come to fruition it fun. Playing with my kids is fun. Hanging out with good friends is fun. Sex is fun.
Twitter is a distraction.

Manthong's picture

If I am correct, twitter is an investment in the sprurious and short attention span of modern sheep.

It could be a winner.

Truthseeker2's picture


 "All of us have seen bubble after bubble grow and balloon, and merge and overlap, and inextricably interpenetrate each other, until all we have is one massive bubble ready to pop.  But, when will it pop?!

It will pop when the confidence level is sufficiently undermined by the very same MEDIAthat controls the flow of the relevant information.   And who, pray tell, controls the media, if not ‘The Invisible Hand'?"


Special Message to the Market Oracles and Money Masters of the Universe


401K of Dooom's picture

Thank you AlaricBath!  You hit the nail on the head!  I could not have said ti better myself!

ihedgemyhedges's picture

"Sex is fun." Yes I agree. Please email my wife and let her know this. Her email address is....

Fuh Querada's picture

Shrink : Do you converse with your wife after intercourse?
Patient: Only if her mobile is turned on.
Shrink: Does your wife smoke after intercourse?
Patient: Never looked.

Chris Jusset's picture

You know the stock market is in a bubble when US Equities are inverted, such that "the expectation of continued monetary accommodation has trumped economic fundamentals to become the main factor determining the near-term outlook for U.S. equities."  A negative correlation indicates that weak U.S. economic data tends to push equity prices higher, while strong economic data tends to send them lower.


phaesed's picture

And I'm pretty sure Reagan was one of the biggest sell outs to the military industrial complex that our nation has seen.

Nothing but the truth.'s picture

Stupidity like this will prevail when people have more printed money around them , than any brainpower to match.

Seasmoke's picture

I never thought I would live long enough to see another INTERNET STOCK BUBBLE. 


either I am a vampire or this is one fucked up market. 

lewy14's picture

So, brave soul that I am, let me make the case as to why this time might be different.

- in the first internet bubble, the monetization of eyeballs was a conjecture, a dream - just a story. These days the monetization of eyeballs is more of a science thanks to Big Data analytics. Yes, there is a lot of hype around Big Data, but some reality too. I base this on many first hand accounts from several practitioners and going through the math and technology stacks and business models myself. Bottom line is that value placed on eyeballs is much less of a story and more empirically validated. Twitter can make money through a lot of different mechanisms; they just need to pay attention to my second point:

- the industry learned an important lesson from MySpace. The lesson is simply don't suck - and then you won't lose your network effect. As long as Twitter simply does not suck it won't lose out.

Unforced suckage errors have largely been eliminated by advances in UI/UX and the acceptance of those fields as first class participants in the development process. Also the adoption of DevOps which can iterate changes quickly without bringing down the house. Finally A/B testing guards against suckage surprises and makes a science out of previously aesthetic and conviction driven feature and UI design.

The biggest suckage risk to FB and twitter is over-agressive monetization. Zuckerberg's latest comments seem to show he understands this quite well. Twitter would have been in error to monetize more aggressively prior to now, and they very much understand they have to go easy. 

Do I personally buy any of this? No, as measured by the fact that I won't part with one thin dime based on this gibberish I just wrote. Just trying to lay out the best case I can (before I reject it anyway). But if Twitter and others in its cohort ends up valuable, it may be for the reasons I just gave.

NidStyles's picture

It makes sense, so it's likely correct.


Imminent Crucible's picture

I don't personally buy any of it, either, lewy14.  Not because those are bad arguments, but because of two principles.  The first is, if you have to pull together nine reasons why your case is strong, it's weak.  If something is bound to happen, it's going to be because of ONE primary driver, not seven or nine or eleven.

The other is that Twitter (along with the rest of the social media junk) is essentially a fad that adds very little value but a lot of time-suck.  It creates the illusion of a big network of friends and family.  When you're there, you feel almost like you're "at home".  But it's only a feeling.

I think it was Robert Frost that said, "Home is the place where, when you have to go there, they have to take you in."   Let's see if Jimmy Kimmel moves in with Kanye West when his career goes south. Or vice versa.

lewy14's picture


Social media is a time suck.

(I say as I compulsively check for the third time in ten minutes to see if someone commented on my comment).

Acet's picture

Also from inside the technology side of things I can confirm that techology is not developed in an better, more methodical or more controlled way than during the last boom and that the disconnect between the needs of users and what actually is implemented is no smaller than before.

In my experience, the kinds of skills (mostly business analysis and technical analysis) that are used to bridge the gap between those creating technology and those using it are just as rare as they've ever been and most of the few pratictioners out there don't understand enough of one side or the other.

In addition to this, fast growing startups remain some of the most disorganised, ad-hoc, improvisational development environments out there (this is not a good thing).


Whoever is doing the argument that fast iteration cycles (i.e. Agile Development) and working with UI/UX professionals to reduce suckage justifies .Net boom valuations is full of shit and is probably selling his or her book.


lewy14's picture

Acet, I believe we established on another thread that our experiences in our respective locales have been different.

London is a different world. (I do like the financial tech and follow Martin Thompson's blog.)

 The quality of the work I'm privy to locally is outstanding. 

Mistakes are made, to be sure - but they tend to be made faster, corrected faster, and are shallower. "Pivot".

Talking book? Not so much; I don't own any eyeball plays in either the public or private market. I'm more interested in b2b saas companies with promising traction / revenue.

Of course there is still a bunch of fail; I was making the case that there are reasons to support a "millions of eyeballs" valuation that didn't exist in 1999. If you think I'm full of shit, well, I agree with you. (In that I'm sure not convincint myself to buy any twitter.)

Disorganized? Ad hoc? Improv? Sigh. You're making me nostalgic. I did my best work in those environments. Some in startups, some in BigCos. The ordered, methodical teams were stifling. Pretty sure you would have hated me as a co-worker. ;) But all the best to you.


dark pools of soros's picture

That's why Netflix was an actual winner..  they provide serious value and disrupted monopolies..  sure they have a target but their move to make their own content was swift correct to the dumb splitups they shot themsleves for the earlier crash


disclosure..  i had it early from 45 and sold at 50 ....  yeh me, watta gain


Nobody For President's picture

either I am a vampire or this is one fucked up market. 


Oh hell seasmoke, why not both?

SillySalesmanQuestion's picture

The Twitter bird stuck full of arrows is hysterical! If only Rick Santelli would tack that sucker on his dry board tommorrow morning, right before the market opens...  :)

Seer's picture

Sadly, it's the canary's canary...

We're running full bore, on fumes...

Hughing's picture

This bubble is to be made permanent; so horribly catastrophic will its collapse be that everything and anything will be done to prevent it.

Marco's picture

Haha, no ... the collapse will actually perpetuate the status quo ... once the US stops being able to sucker foreign countries into buying into it's bubbles, then we will have the catastrophic collapse.

I thought after the mortgage crisis this would be the one, but apparently I underestimated the willingness of pension and sovereign wealth fund managers to sell their beneficiairies down the river yet again.

Icewater Enema's picture

"It's impossible to think of the first Internet era without thinking of the Pets.com sock puppet. He was everywhere and was nearly as well-known as the Geico gecko is today..."

"...but the company also lost money on virtually every item it sold."

And in the last days, as I recall, the sock puppet was their best-selling item. Should have charged more.


Seer's picture

It just keeps getting worse... but quite frankly, how can one go "one better" than selling stock in something that neither sells or makes anything?  At least pets.com sold actuall stuff!

And as much as I dislike Microsoft I'd have to say that I long for the days in which the markets were composed of companies of such that actually made stuff...

This really ain't going to turn out well...

stant's picture

big meany .com

401K of Dooom's picture

No, you want to say Big, Blue Meany.com!

Bay of Pigs's picture

Not sure Im buying into everything this guy Snyder writes. His sources are dubious at times. I checked on the one about the NW and Hawaii being "fried with radiation".


That is utter bullshit.

Seer's picture

So, you're saying that Twitter is a buy?  Don't be shy, tell us, hanging on the edge, whether we should invest or not.

Bay of Pigs's picture

I wouldn't buy it, but I said that about FarceBerg too. 

I'm sure plenty of people here will try to scalp a bucks on it though.

Icewater Enema's picture

Actually, this isn't funny. I am working with a guy who is trying to raise money for a startup with a new technology for diagnostic cardiology. Seems very promising. However, in these pitch sessions where he is up against the social websites, he is having trouble getting traction. Investors want immediate return on investment and 5 guys can bang out a website in a month. Investors are telling him that waiting 12-18 months for FDA clearance and market release is "way too long." Apparently, your senior class project, if it can be flipped quickly enough, is once again more fashionable than a real product. It is indeed a fucked up market.

Seer's picture

And maybe investors realize that folks won't be able to afford medical shit?

Icewater Enema's picture

More like they realize that this manic market can't last much longer. Get in, sell it or go public, and cash out ASAP before it all goes south. In the 90's, and early 2000's, 5 years was typical to get a startup product cleared and into the market-even longer sometimes. Now a year is too long, because the turnaround on this interweb shit is just too fast to ignore. Everyone wants to be Mark Cuban.

dark pools of soros's picture

I can haz billion and basketball team??

lewy14's picture

No, investors are being told (all but in-your-face explicitly) that med tech is an insiders game and that the FDA will fuck capriciously with anyone who is not an insider.

This I know.

dark pools of soros's picture

no doubt..  that is like MIC shit..  they know that money is constant from taxes supporting those fields so you have to bully your way inside the club



hamstercheese's picture

Medical shit..? Someone actually sells stool samples?

813kml's picture

But of course, please browse the stool selections on our new website "Shitter".  We are #1 (not #2) in our niche and set to IPO next week.  But get in early, this wealth doesn't trickle down...

401K of Dooom's picture

Just wait until all medicine is banned by Obamacare.  Then you can make a killing with Black-Market medicine.  This what the Democrats want in America.

pitz's picture

Yup, capital is very tight for real businesses.  Even in the tech sector, these firms are very small on a relative basis, yet they're receiving most of the valuation. 

Acet's picture

I'm inside the Startup world in London and my impression is that at the moment, especially on the funding front, it's all about salesmanship and having a company wrapped around a single idea in a nice package that can be sold on to some suckers via an IPO or a takeover.

Long term viability, long term growth potential or even just expanding beyond the market the company is targetting in the beginning are unimportant: essentially anything that makes a company a long term going concern is unimportant.

Today's "Tech Startup" recipe for almost everything you see out there is:

- Wrap a corporate shell around a single product which in turn is wrapped around a markettable concept

- Market the shit out of it to get eyeballs

- Sell the whole package before its Best Before Date.


Caviar Emptor's picture

The internet has become the opiate of the masses. Porn addictions, ADD and OCD from checking smartphones and escaping reality every 20 seconds, false "friends" on FB... It's a plutocrat's and an oligarch's wet dream
Oh and it's a great propaganda platform and spying medium. Orwell woulda smiled

JustObserving's picture

It is being projected that after the IPO Twitter could have a market valuation of more than 13 billion dollars.

Sorry, you are off by a few billion:

The $26 price values the microblogging service at $18.34 billion, on a fully diluted basis. That is 16 to 17 times forecast 2014 sales, a premium to rivals including Facebook, LinkedIn and Yelp, according to some analysts.


One eyed man's picture

USA Today ran a story about confidential internal projections that Twitter MIGHT make $200M in 2015. That would give it a PE of 85 if the $17B valuation holds. That's clearly a bubble valuation (if everything goes really well).

With FB I could somewhat see how people might be tempted to buy it because even though I don't use FB myself, some of my friends say their wives spend hours on it. But I don't know personally know anyone who uses Twitter.

MarsInScorpio's picture

What is its market value when shares are sselling at $44 - $46?

So, is he still off by ka "few billion," or is your analysis off due to using the incorrect value of a share?


jim249's picture

Now Amazon, that can't be a bubble.

Marco's picture

There's not enough suckers in yet, need to convince more non-US retail investors out of money and into the stock market (lots of advertisiment for stock funds and brokers on the radio here at the moment).

I say non-US because of course stock market bubbles are the main way for the US to keep it's trade deficit going (they repatriate massive amounts of dollars). The rest of the world has been falling for it over and over and over and over again ...

Bosch's picture

Obviously this is a naive question, but: 

How the fuck does Twitter even spend $64.6 million dollars last quarter let alone lose $64.6 million?  What does it take to run Twitter?  Seems like something 2 guys in an apartment with a T1 line could run on their own. 

pitz's picture

Extremely bloated software.  I've heard stories, its horrifically bad.  Most of the social media and even search engines aren't hiring people for their tech skills, that's for sure.  The employment situation with those companies is more of a glee club, than a meritocracy.