Silicon Valley: From Rarified Air To Exhaust Fumes

Tyler Durden's picture

Authored by Mark St.Cyr,

As we sit here today the IPO that was supposed to prove that the dream of “its different this time” were still alive-and-well, has shown it is anything but. The real crush for the “crushing it” crowd is this – the reality that proves that the party is over came from both a business and service whose main product did nothing more than augment reality as to add cartoon features to pictures then disappear into the ether. And this you were told was why it should be worth 10s of $BILLIONS of dollars in market cap.

As inane as that was, what became all too surreal was when this concept was applied to its S-1 where the reality of its business plan appeared to be nothing more than a “pig in lipstick” matching its core product features.

And “The Valley” along with the entire tech world in general not only believed it, but argued that this business was worth those $10’s of BILLIONS of dollars even though the company itself stated in its own business plan that not only was it not profitable – it may never be.

Sounds logical only if you live in the augmented business view of “The Valley.” Too the rest of us in the real business world? It’s crazy talk. Plain, and simple.

The compounding issue that Snapchat™ is generating (for it’s not reserved solely within the virtual world) is the near laughing-stock faces that appear to be growing across one of the most least informed investor public of this era: The hordes of Millennials who lined up to be “first” much like they used to for an iPhone® release (remember those?) and bought shares as soon as they became available to the public at $24. And the higher it went, the more they bought, and the better the felt.

Then, as soon as it begun – it was over.

To truly understand just how quickly this entire debacle in the making has fallen, let me express it this way:

Since going public on Thursday, March 2nd, its shares had risen some 44% from its IPO price of $17 to its opening exchange price of $24 to then zoom to near $30. This was greeted with exuberance and cheer not only for those who got in line to be “first.” But was also used by much of the tech press as to show just how “worth it” this debut and idea was.

Yet, it didn’t stop there.

If you turned on your financial/business media program of choice the results were the same. The accolades coming from the “tech” side reporting was filled with both sighs-of-relief, and a little smugness of, “See, those naysayers just don’t get tech or social. This proves the IPO market is alive and well!”

That was as of Friday, March 3rd, the day after the IPO’s debut. Then came Monday, and let’s just say – it was different this time.

By Monday the reporting went from, shall we say, exuberance mode – to justification mode. i.e., Don’t panic!!!

If you once again perused not just the broadcast media, but also the printed or online, the commentary was the same: “It’s still up 44% from its IPO price!”

Well, yes, that was true, yet, that was far from accurate as to explain what was taking place. A much better description of what was playing out would be something along these lines:

“Initial investors purchasing shares of Snapchat as it became a public company via the exchange profits now match the company’s core product. e.g., POOF! They’re gone. And it’s appearing to get worse. Much worse.”

By Tuesday anyone who had purchased at the opening bid of $24 would now not only have had any potential profit sent to the ether – everyone, and yes, everyone who stood in line to be first on either Thursday, or Friday just 4 days prior was now losing money on their core investment dollars. And like I said – it was only Monday.

By Friday of that same week? The meme of “Still up 44% from its IPO price of $17!” had fallen silent as that now had been halved. And yes – it gets worse.

Over the next 5 trading days the once again “IPO to prove to the world that not only unicorns were great, but “decacorns” were just fantastic powerhouses of business” began morphing into a creature that far too many dream themselves could do: It became a “teenager.”

In other words, its share price now began using numbers that began with “teen” as in 19, then 18 as its share price continued falling until finally ending the week solidly far, far beneath its triumphant $24-ish close only 5 trading days prior as they say in the investing world – “remaining a teenager” closing at $19 and change.

The issue here is that process has one key attribute: It’s the same pattern we’ve seen before, but now it’s represented in days. To wit:

From IPO to today. What had once taken well over a year has morphed from months to now days.

(Chart Source)

Back in 2013 I argued that the meme of “its different this time” and more had taken over all sense of reality within “The Valley” (i.e., tech in general), and once the effects produced via the Fed’s ending of QE were in full force the resulting backlash would become prominent for those willing to look. And I pointed to the current songbird of all that was “the Valley” Twitter™ as the canary-in-the-coalmine one needed to watch diligently. The above shows the results of that warning in all too glaring detail.

I made a few more observations (as well as warnings) both before, as well as during that are germane for further context. From September, of 2014, “The Shot Heard Round The Valley World” To wit:

“Once the Fed shuts down the section of QE that has been pumping Billions upon Billions of dollars every month – it’s over for a great many of today’s Wall Street darlings.


Think of it this way: Who is going to fund your next round when they no longer have access to the Fed.’s piggy bank? Let alone pump more money into older start-ups that just haven’t produced any real money (as in net profit,) but have produced nothing more than great new employee digs or benefits?


Tack along side this the culture shock in what will seem near instantaneous with the shunning that will take place of any business resembling the, 3 employee, menial customer base, Zero if not negative profit margin businesses formed with the implicit intent as to be bought up or “acquired” for Billion dollar pay days.


These will be the first to go. That formulation is going way of the now infamous Pets dot-com sock puppet. This will be the first true shock to Silicon Valley culture that hasn’t been seen in many years. And it will be far from the only one.”

That was in 2014 and the reaction to such heresy was like showing the cross to a vampire. Or said differently – I was not going to be on any “list” to speak at any of the hipster inspired tech conferences. The issue? It’s precisely what happened and the great IPO drought began in earnest to the dismay of the entire tech vis-à-vis “The Valley” complex.

Another was made a year later in the article, “Crying Towels”: Silicon Valley’s Next Big Investment Op” Again, to wit:

“Twitter is (again, in my opinion) a real-time microcosm of what’s about to hit the whole Valley. i.e., A real shite storm, and here’s my reasoning…


There are two issues that are very different for both a company as well as the narrative of a whole industry supported by the wings of such a “canary.” And both of these go a little more than unrealized by those not familiar with them. For it hits right at the heart of how a meme or, a presumptive “It’s different here” attitude takes hold when true business principles, disciplines and more get lost on those desperate to not see their world view crushed. But business in its purest form has a way of doing just that – crushing naive or wishful assumptions.”

The idea of publicly arguing the above was met with derision and scorn by many across the mainstream financial/business media, along with those emanating via the tech press with its own cadre of talking-head “Valley” aficionados.

The issue that many were trying to uphold (and pleading for) revolved around the argument that “It’s hard to tell when you’re in a bubble when you are in one.” And followed that up with – “And we don’t believe we’re in one.”

I took and argued the direct opposite view. Here’s how I describe it:

“No. It is easy to spot when you’re in a bubble. The requisite for that spotting is the willingness to actually look. For when fundamental business reasoning are not only circumvented with “fairytale logic” but the argument for even greater tales are needed ever-the-more? You know – it’s a bubble. The real question after that realization is this:


Do you have the wherewithal to overcome the FOMO (fear of missing out) urges that will surely end in tears as the bubble may inflate further? For the argument has moved from anything resembling business, directly to psychological argumentsonly, where emotions are the rule, not the fundamental rules of business. And the resulting frenzy can last far longer than anyone can contemplate. For you’ve moved from fundamental reasoning to pure psychological, emotional, groupthink.


The compounding issue is this: Those who believe they can “get out” when needed before-hand fail to realize it’s that same thinking (an emotional one) that will keep them in, rather than get them out in time. There’s a reason the term “Ride the tiger” persists to this day. Getting on “its back” to begin with has proven over the centuries to be precisely the wrong move.”

To paraphrase from the movie “War Games”: Sometimes, the only winning strategy is not to play. Even if not playing makes you appear (and scorned) as the one who “doesn’t get tech.” On an aside, people forget the public scorn via the investing class for Warren Buffett’s refusal to invest in the tech space during the late 90’s when fortunes were being made overnight. Then to be declared an investing genius by this same cadre when he had no direct exposure to the following dot-com crash.

Today, one can clearly see the “bubble” has indeed popped. The issue for those currently blindsided is that they were (and some still are) clinging far too fiercely to their “fairy tales” of IPO-stock option riches, than a child still wanting to believe in Santa.

Snapchat’s IPO perfectly fits that analogy. The only current unknown is: was that coal that was left behind? Or something else?

To all this I argued the case back in May of last year, “If Everything Is So Great, Where Are The Unicorn IPOs?” Once again, to wit:

“Over the course of the last week it seemed no matter where I turned in the business media one meme was being pushed above all others: It’s still a great time to be a private tech unicorn. Implying, that funding rounds were still “robust.”


What wasn’t said, so I will, is this: It’s a great time to be a private “unicorn” rather, than take the chance and become the poster-child for the IPO apocalypse. For it’s better to be assumed a $BILLION dollar success story rather, than IPO and officially open the books to the market and remove all doubt – that you’re not.”

This was right before Twilio™ announced it was going public and bringing forth its own IPO to the then (and still) barren IPO market. This event (for I have no feelings about the business itself) was used as the foil to put all the naysayers (yours truly in particular) back under the rocks they envisioned we crawled out from as to dance upon our heads with the prancing hooves of the resurgent unicorn IPO market and meme.

Hint: The above chart shows you just how all that “its different this time” was greeted via the new reality of: it surely is – different.

As you can clearly see from the above charts (or “pictures” as they say in “the Valley”) what once took well over a year to develop (as I warned would take time to develop via the initial lingering effects of QE) as witnessed through the Twitter IPO and resulting share price; took the same resulting actions to appear in Twilio’s only a few months.

And now Snap’s appears to have followed the same pattern. The problem? It’s been only 12 trading days. Yes – days.

So now let me end with these questions:

What happens if (or when) Snapchat’s next headline reads: Share prices fall below $17? And where do investors go to get their “lousy T-Shirt?” Or should I say “crying towels?”

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
svayambhu108's picture

Tylers check out this seems  you are shadowbanned on twitter

along with others

3rd on scond column


Stuck on Zero's picture

I have one chief complaint about this article. SnapChat has nothing to do with tech. It is a social media play. There is very little tech in Silicon Valley today. Most R&D went to Texas, New Mexico, Israel, China, Japan, Taiwan, and Korea. The only tech I have seen in Silicon Valley in the last ten years was Theranos .... 

Thinkpad's picture

Precisely. Last year a tech thought leader early days billionaire opined he wouldn't start a tech co in SV start up costs were too expensive. You know somethings gotta give when employees are living out of their cars and tents. I know of a great MEMs sensor IoT co in Switzerland a looong way geographically from SV. It's so incestuous up there even the robots have six fingers and a harelip.

Thinkpad's picture

Don't forget there is no money to be made in social media the Khardasians cornered that market years ago. 

Dragon HAwk's picture

Let the Censorship Begin.. ( Bastards )

auricle's picture

SNAP isn't even close to it's bottom.

chicken_goose's picture

SNAP will go to zero, I'm convinced of it - and it won't be the only "social media" based tech company to go bankrupt either. When the next crisis stage of the downturn (which we are still in) hits then companies are going to be cutting advertising on these useless platforms first - companies like SNAP will be the first to go down. I also believe FB's market cap wll drop by at least 70% when it hits, they are ridiculously overvalued at almost $400bn.

hooligan2009's picture

i have an app for a pc that i will give away for free

enter DOS

type "del *.*" and hit enter, type "Y" and hit enter again.

not as good as a Hillary cloth scrubber, but works just great to clean up redundant files

maybe i will sell it for 40 billion next year.

Consuelo's picture



"Then, as soon as it begun – it was over."


First thought that came to mind after glancing the line above was: 'That's about how fast FB's bot/fake-likes Fiasco came & went...   When by all rights, that bit of skullduggery should have landed little red-diaper Trotsky-in-training himself, right sqare in the Hoosegow.

scv's picture

billygates company expe hires clinton

cloud scam companies reporting fake profits

Publicus's picture

Silicon Valley is anti American and must be punished for their crimes.

Thinkpad's picture

You got that right ask Starbuck's after their immigration comment latest is CEO may be forced to resign. You need to give it a broader stroke all of California is an odd duck an lately  have been quacking about seceding. Here's the bad news I'm not sure the rest of the nation would care if they left the union they are so out of touch with reality. Blame it on Hollyweird I guess and now SV.

adr's picture

Salesforce hasn't turned a GAAP profit since 2009, yet it's worth billions. 

Amazon has only turned a GAAP profit twice, or maybe three times since they began and it's worth hundreds of billions. 

The losses of the Silicon Valley elite total trillions of dollars over the past 25 years. The profits outside Apple total in the low billions, if you trust the accounting. 


orangegeek's picture

We've all   adjusted   to these realities.

CJgipper's picture

I think there's a difference between companies with a working model and without.   Some just waste more than they make, but it's fixable.  Fixable is amazon, uber, tesla, lyft, fitbit, etc.  These companies have real revenue and CAN profit.  Snap, twitter, twilio.... no one will pay for these things.

Thinkpad's picture

and are selling a tangible product. How do you monetize clicks and views? I guess eyeglass manufacturers and addiction specialists are raking it in. Never give children the keys to the Mercedes it won't end well.

Thinkpad's picture

Don't forget Silicon Valley in a fit of exuberance about their future added 22,000 people to the tribe last year all living in tepees as they can't afford any other form of shelter. Than in a more sober moment laid of 22k+ in January of this year. They burn through money like they just were diagnosed with terminal cancer. Remember the Gold Rush in Northern California? It wasn't the miners who struck it rich(twitter, Snap, etc) it was the grocer and the saloon and the hardware store (chips, components, sortware) they struck it rich.

Thinkpad's picture

VC guys spread the wealth and commit cash to many ventures all the time knowing that if one hits the revenues swamp all the rest of the duds in the portfolio. That's been the model since the flood. Once a start up gets a few credible names signed up the sheep rush in thinking the deal has been blessed and it most likely is implied by the guys looking to raise money. Hold on not really it could be one of 50 start ups any given VC mavin invested in that year. I'm pretty sure most folks teaching for a living with a financial advisor don't get privy to this common practice and get sucked in by all the hype. Sad truth and this is how Snapchat and tulip bulbs can become overvalued.

LawsofPhysics's picture

Is that a decrease in SNAP card usage?  What am I looking at?  What a strange casino, now where's my drink?

0valueleft's picture

You want the good life...

you break your back....

you SNAP your SNAP your neck.

SNAP your fingers SNAP your neck.

The expectations of my daily bread, give me the hunger to steal


ILikeBoats's picture

First thing to notice: the time scale of each of those charts is very different from the next, so a direct comparison is wrongly drawn.

Second thought, if a pessimist: what if this means the half-life of tech-IPO exuberance is quickly becoming shorter and shorter? Means we are at the end of said exuberance...

gregga777's picture

The time scales are different as was very CLEARLY stated throughout the article. One would almost think that you can actually read.

Syntec's picture

Though I agree with the author that SV is living in an unsustainable bubble, this was an absolutely terrible read.  New high school graduate? Church-educated, disgruntled gen-xer?

Make your arguments based on supporting facts that you cite in-article. Also, it would do you well to provide legitimate reasoning from both sides, not just "the idiots are furious with my conclusion because, well, they're idiots!" You mentioned the reason for these companies crashing is because they are built on profit-less business models, but fail to highlight the fact that companies like TWLO are not currently profitable because they are investing in growth--which is far above average for listed tech companies.  If people listened to your line of reasoning for AMZN, they would have missed out on 6,000%+ gains.  Now, not all companies are Amazons, but not all traditional listed companies are Boeings, either, and many, many companies who were profitable at IPO went BK throughout the history of the stockmarket.

It also feels strangely like the author is making up some narrative that includes the tech press acknowledging or actually giving a shit about what they wrote. Provide links to actual responses. I bet they do not exist.

fishpoem's picture

What are you yapping about? This is one of the most entertaining articles on the topic ever. Witty, clever, and well-written. We're talking 21st century Tulip Mania here. Perfect target for satire.  Quick question for you, Einstein: are you terminally addicted to blowing smoke out your ass? If so, call Mayo Clinic immediately.

gregga777's picture

The true Double Top Secret unicorn business plans clearly state that their business models are fleecing the suckers, I mean, investing public.

pitz's picture

Time to flush the self-driving car scam away.  And the H-1Bs. 

DEMIZEN's picture

I can run  a metrowide uberlike app from 3-4 obsolete dell linux servers based on OSM .. its fucking nothing, can be done from a sawdust garage. but what i dont have is politicians and lawyers covering my ass..


its all a giant fucking balooned scam, a magic trick to fool the ignorant masses. uber is worth 1 anual H1B salarry and garage sale rackmount trash.

DEMIZEN's picture

I can run  a metrowide uberlike app from 3-4 obsolete dell linux servers based on OSM .. its fucking nothing, can be done from a sawdust garage. but what i dont have is politicians and lawyers covering my ass..


its all a giant fucking balooned scam, a magic trick to fool the ignorant masses. uber is worth 1 anual H1B salarry and some garage sale rackmount trash.

Sledge-hammer's picture
Sledge-hammer (not verified) Mar 20, 2017 9:07 PM

Damn it!  I just wish that I had been a young computer/IT geek who came up with some shiny app and sold it for millions or billions.  I could be in the Caribbean right now sipping fruity drinks with Milton.

pparalegal's picture

Get'em while they're hot folks. Pump-N-dump economy with suckers transfixed on their own tweets, selfies and emoji's.