How The Second Tech Bubble Will Burst, In The Words Of Silicon Valley's "Poster Child" And World's Youngest Billionaire

Tyler Durden's picture

Back in December, following the Sony email leak, the world was granted a second (again uninvited) glimpse into the private life and thoughts of the person who had previously suffered another email leak, this time exposing his fraternity days explots: Snapchat founder and CEO Evan Spiegel.

And while many have been quick to mock Spiegel for some of his boyish ways, the reality is that the not only is the 24-year-old the world's youngest billionaire, but he has quickly won the admiration of Silicon Valley's brand names like Twitter CEO Dick Costolo who has said "I really think he is one of the best product thinkers out there right now."

The reason we bring up the Spiegel email leak again, some 4 months after the fact, is that while the public's attention when the email was first released focused on his strategy surrounding the growth of Snapchat, there was another far more important aspect to Spiegel's email. One that, in the aftermath of last night's Facebook earnings, has proven to be spot on.

Recall that in the latest Facebook earnings reported last night the company posted its slowest growth in quarterly revenue in two years coupled with higher spending on research and development ate into profits. Facebook has warned of heavy investments in 2015 as it steps up efforts to expand a collection of products that include messaging service WhatsApp, photo-sharing service Instagram and virtual reality headset maker Oculus Rift.

In other words, while many focus on Facebook's top-line and eyeball growth, far more importantly, Facebook's spending on user acquisition is soaring. As a result, Facebook's operating expenses rose 83% in the first quarter as R&D costs jumped 133 percent and marketing and sales spending nearly doubled.

This is precisely what Spiegel warned about back in December 2013 in an email to Benchmark Partners' executive Mitch Lasky, which was leaked as part of the Michael Lynton, a Snapchat director and Sony executive, 32,000 email hack. This was Spiegel's accurate forecast in December 2013:

Facebook has continued to perform in the market despite declining user engagement and pullback of brand advertising dollars -- largely due to mobile advertising performance - especially App Install advertisements. This is a huge red flag because it indicates that sustainable brand dollars have not yet moved to Facebook mobile platform and mobile revenue growth has been driven by technology companies (many of which are VC funded). VC dollars are being spent on user acquisition despite unknown LTV of users - a recipe for disaster. This props up Facebook share price and continues to justify VC investment in technology products based on abnormally large mkt cap companies (i.e. "If this company attracts just 5% of users that FB has, it will be HUGE" - fuels spend on user acquisition as user growth is tied to values).

But why is this relevant: after all Facebook, at a market cap of $235 billion, is just barely off its all time highs? The answer is because the good times won't last, especially if yesterday's jump in user acquisition costs is indicative of a new, secular trend for the site which alleges to have nearly 1.5 billion monthly users. This is what Spiegel thinks will happen then:

When  the market for tech stocks cools, Facebook market cap will plummet, access to capital for unproven businesses will become inaccessible, and ad spend on user acquisition will rapidly decrease - compounding problems for Facebook and driving stock even lower. Instagram may be only saving grace if they are able to ramp advertising product fast enough.

More importantly, Spiegel brings up an absolutely critical point for the second tech bubble fueled by social-media stocks: there simply is not enough ad spending dollars in existence to support the gargantuan market caps.

Total internet advertising spend cannot justify outsized valuations of social media products that derive revenue from advertising. Feed-based advertising units will plummet in value (in the case of Twitter, advertising spend may not move beyond experimental dollars) similar to earlier devaluing of Internet display advertising.

And finally, linking it all together and confirming that Spiegel is far more mature than his youthful 24 years, is his take on what happens to the tech bubble once the Fed's Kool-aid ends, and what follows.

Fed has created abnormal market conditions by printing money and keeping interest rates low. Investors are looking for growth anywhere they can find it and tech companies are good targets - at these values, however, all tech stocks are expensive - even looking at 5+ years of revenue growth down the road. This means that most value-driven investors have left the market and the remaining 5-10%+ increase in market value will be driven by momentum investors. At some point there won't be any momentum investors left buying at higher prices, and the market begins to tumble. May be 10-20% correction or something more significant, especially in tech stocks.

All of this was said back in December 2013 by the person many consider to be at the forefront of the social media bubble. Is it clear now why central banks are literally going all-on to monetize everything and anything around the globe, just to keep said momentum investor bid going? Because without it, and all bets are off, not in our words but in those of Silicon Valley's very own poster child.

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GMadScientist's picture

Confetti Billionaire == World's Tallest Midget

Save_America1st's picture

he must be reading ZH daily

chumbawamba's picture

And you are a billionaire  Oh, yes, because of excessive valuations.

It's what made possible your insignificant and less than profound words being dispensed from the pages of Zero Hedge.  In other words, if it wasn't for the very thing you're bitching about, you'd still be playing Xbox in a crappy apartment somewhere in Fresno you share with 2 roommates.

I am Chumbawamba.

NotApplicable's picture

You seem to always find the most ignorant way to fail at snark.

chumbawamba's picture

Translation: my remarks are apparently too intelligent for you to follow.

I am Chumbawamba.

Handful of Dust's picture

I rememeber when stawks like Lucent, Nortel, AOL, CISCO, etc were all the rage.


Lots of peeples got raped in that bust.

free_as_in_beer's picture

This was the best article I've read on ZH in over 2 months.

Deathrips's picture

Is real money paper debt promises or is real money backed by something physical and fungible?


This is not a new concept.


One example of history.



palmereldritch's picture

And then the Fed outlawed all cash and made Facebook the only medium for financial transactions...and so was born


*Bet you didn't see that comin', did you Evan?

James_Cole's picture

Kids these days.. so much smarter than their parents. 

NotApplicable's picture

What's so fucking intelligent about purposely ignoring the point of an article so you can demonstrate your ability to talk random shit?

MonetaryApostate's picture

Screw it, let's talk about how everything is about to burst, that's real.

(How about those oil jobs vanishing, bankers being dissappeared, or the flopping pogo markets that kill speculation?)


Btw the Oil Jobs have HUGE Economic underpinnings attached to them!

chumbawamba's picture

Have you considered that perhaps you entirely missed the point of my comment?

Here, let me just spell it out for you: WHO GIVES A FUCK WHAT A 24 YEAR OLD TECH BILLIONAIRE HAS TO SAY.

Now, go read my comment again, and see if it makes sense this time.  I think the irony is readily apparent, but maybe this kid is your cousin or something?

I am Chumbawamba.

MonetaryApostate's picture

Have you considered that I was in concert with your sentiments?

Because, I don't give a flying rats ass about what a tech billionaire has to say either!!

More over I don't give a damn what you gotta say either..... :P

chumbawamba's picture

Well, I am not so vain as to think my comments matter to you.  However, if you'll look closely you'll notice I was responding to the gentleman above your comment.


MonetaryApostate's picture

Oh really?  That's quite perosterous that would have ever escaped my extremely narrow minded attention, but thanks for pointing out the obvious though...

Atomizer's picture

LMFAO. It's a fucking riot. Good thing this fire isn't in Kalifornia. The new water bans wouldn't allow the two structures to be saved. 

Escrava Isaura's picture





Your comments are spot-on. Completely accurate.


Too bad many commentators at Zero Hedge still don’t get it.


Not that comes as a surprise to many of us.


Listening to a tech person, and a 24 years old making predictions about percentages of decline, it is really pathetical.


I guess some of us get what some of us deserves.


So chumbawamba thanks for your comment. Your type of comments is why I came here for.



Oh regional Indian's picture

Geniuses, these tribalists are, all the billion dollar companies are started/run by them.

Tribal geniuses, no villages missing any idiots.

I was in the thick of it back in 1999-2000.

Same as it ever was, you either sucked tribal micro-weiner or you did not arrive.

Bugs me that the global spotlight is taken by tribalists on so many fronts.


Condition 1SQ's picture

This isn't coming from a place of jealousy or bitterness, but I am unimpressed with these young billionaires.  Even one who grasps basic economics like this chap.  I don't see the genius in what they've done.  They are taking the notion of consumer gadgets and placing them in cyberspace.  That's all well and good, but the fact that one can accumulate such incredible amounts of wealth from pure "luxury websites" is staggering. The value they have added is dramatically overstated.  For instance, the developers of oculus rift and similar VR headsets have the potential to revolutionise computing much more than something like facebook or snapchat.  But even that is a silly luxury trinket.  Furthermore, I will submit that I could take probably the brightest 50 ZH readers, put them in this kid's shoes, and they would blow his performance out of the water.  I've sporadically had the opportunity to rub elbows with high net worth people (tens of millions), and while very poised, none of them are what I would consider geniuses.  In fact, I had decided after meeting a dozen or so of these people that it really has more to do with (in order of importance):

1) connections (the vast majority of high net worth people have gone to the "right" schools)

2) timing (having the right connections and resources available at just the right time)

3) luck (there are plenty of unforseen hazards, like the random regulation or determined competitor who scuttles your start-up)

4) determination (you won't "make it" unless you get up every morning willing to work 24 hours straight to put out a fire)

5) intelligence (important, but certainly not mandatory, that's what the "help" is for)

chumbawamba's picture

You put into many words what my terse comment above alluded to.  These young tech CEOs are simply a bunch of hand-picked NSA/CIA goons.  Mark Zuckerberg is the posterboy.

Maybe this will make sense to NotApplicable.

I am Chumbawamba.

Atomizer's picture

Nice to hear your views. Haven't seen you in ages. Hope all is well. 

I am a Man I am Forty's picture

The bottom line is making a bunch of what everyone else wants and has a very hard time accumulating is impressive. Opinions are just that, opinions. Being able to fuck off for the rest of your life is the purest form of freedom. And this guy can do it if he wants. Won't have to answer to a fucking soul. So we can debate whether what he's done is impressive or if he is impressive, and if I were him I'm pretty sure I wouldn't give a fuck what we thought.

chumbawamba's picture

He ain't fucking off for the rest of his life.  What wealth he has is tied up in his valuation.  All he has is a number on a prospectus.  And a handler.

I am Chumbawamba.

Skateboarder's picture

Good to hear from you on this matter chumba. This is all a big fucking joke of a life in the bay and anyone with their eyes open can see it forreals.

NONE OF THIS SHIT IS WORTH A DARN. It's all repackaging of memes that have already been beaten to death a jillion times over, and no one apparently gets sick of it, because as long as the skin is new, no one gives a fuck about the body underneath.

True innovation cannot happen while the current paradigm of technologist and technology worship continue from the side of the masses, and while complete and utter restriction of expression and productive possibility exist from the corp/legal/gub/mil side of things. All this garbage is mil hand-me-downs and leftovers in the first place.

Fake numbers, fake people. Almost worth not talking about, except for everyone is all tied into it. "Snapchat"... jeezus, get a life and do something productive for fuck's sake.

SheHunter's picture

Amen I Am A...  if he so chooses he can step away and not answer to one MF soul.  Meanwhile, the ZH crowd can stare at their 'puter screens and just rant to their heart's content....sincere doubts he gives a flying rat-ass.

Condition 1SQ's picture

You obviously are impressed with wealth, regardless of how it is acquired.  That is your prerogative.  To think that freedom is divined from material possessions says a lot about you.  And regarding him not giving a fuck about what we think, that certainly has never stopped anyone from speaking their mind, nor should it.

palmereldritch's picture

I believe the operative term is 'gonnections'.

Think of it all as hologram polish.  Bringing the ponzi illusion to a brilliant lustre.  Less to see and even lesser to perceive.

richinSpirit's picture

What is BigData without BigSample?

Every computer isn't likely digital. The human mind isn't, and our father in heaven doesn't make junk and doesn't need samples. How to best recreate that impression on Earth?

Taint Boil's picture



I “rub elbows” with one worth 100’s of millions - spot on. The only one I disagree with is #4, hard work is not necessary when you hire the right “help”.

ZH Snob's picture

Total internet advertising spend cannot justify outsized valuations of social media products that derive revenue from advertising. Feed-based advertising units will plummet in value (in the case of Twitter, advertising spend may not move beyond experimental dollars) similar to earlier devaluing of Internet display advertising.


Experimental dollars.  Who knew the USD had these kind of subtle shades?   Or, can they all be characterized as experimental?  If so, the experiment would appear to be one of gullibility and greed.


ilion's picture

He might be a billionaire, all right, but I have to admit not a dumb billionaire. The things he says actually make sense.

q99x2's picture

His sister is probably one of the FEDs programmers and he is just covering for them.

fastrakn1's picture

Emails = boys will be boys....


In his emails he talked about doing blow and peeing on girls...what's wrong with that?

Seems like typical college stuff....

nuubee's picture

Isn't it usually the girls in college doing those things?

Atomizer's picture

Just another circle jerk yearning for a golden shower. 

Grinder74's picture

It's because he was doing normal heterosexual things.  It's all teh ghey now.

JuliaS's picture

"People judge me for having a Prius. You’ve got a truck with a big lift kit, probably because you have a little dick... And if that means you have a little dick, doesn't that mean I have a huge dick? No! Because according to my friends that means I’m a fag."

- Bill Burr

NoDebt's picture

"there simply is not enough ad spending dollars in existence to support the gargantuan market caps."

Thank you.  Glad somebody noticed.  

centerline's picture

Capital running scared and looking for any place big enough and safer than where it came from.  Combined with investments desperately seeking yield regardless of risk (or suffer the wrath of the cash flow gods).  Yeah, it ends well.  lol.

Pseudolus's picture

Capital? How quaint! The capital you refer to is a fiction, a mass hallucination...*the* big lie. 

The whole system is set up so there's no longer need for real capital to extract all the wealth out of the world...

richinSpirit's picture

Or just not needed to produce more wealth (useful, desired things - which I can see you may agree with; but also building people into those of good charactor, as having the intentions behind what creates the appearance of good charactor is a form of eternal wealth... right?), especially if "the meek will inherit the Earth" turns out to be a good thing to be lumped in with.

OldPhart's picture

There are still a few companies in the US that actually DO have capital and DO use it to invest in production.  Fortunately, these companies are not listed on Wall Street and are still family run, much like the fifty entities I'm corporate controller for.  This family recognized the need to get rid of debt in early 2007 and started making jumbo payments while they had $65 million in revenue.  In 2010, when revenue was $28 million, all debt was paid off.  We had very modest profitability from 2010 to now.  But we WERE profitable, with no shenanigans, no buried transactions, no off-balance sheet shit.

Last year they managed to buy out competition in new markets.  And those ten new locations were profitable within a year.

Working on getting ready for this years audit, we had $36 million in revenue, $3 million in profit.  And we acquired new debt...some of which is at 0.00% interest, others at 2 to 4%, We mine rock, make ready mix cement, sell steel and do steel fabrication.

Now, in spite of all of the above.

We're seeing a revival of housing construction.  I shit you not.  I find it disturbing when I personally know of an entire walled neighborhood constructed in 2006 (yeah, completed) that has been shuttered...not one unit sold.  Across the street, the mirror of the neighborhood has about 70% occupancy.  We're talking about four hundred McMansions that are off the market, and we're starting to build more homes?

My recession spidey-sense is bugging the shit out of me.

Groundhog Day's picture

Ad spend is simply for brand does not bring necessarily bring on new customers.  when the middle cless gets squeezed and have less and less money to spend on discretionary items...all the ad spending any company does will NOT result in any meaningful link to revenue growth.  This is when margins are squeezed and companies have to decide on saving preserving cashflow or burning it useless online advertising.  

Groundhog Day's picture

Ad spend is simply for brand does not bring necessarily bring on new customers.  when the middle cless gets squeezed and have less and less money to spend on discretionary items...all the ad spending any company does will NOT result in any meaningful link to revenue growth.  This is when margins are squeezed and companies have to decide on saving preserving cashflow or burning it useless online advertising.