Clik here to view.
One can bet our PM has hedged his bets!
There's already another dotcom bubble: We just haven't noticed yet
Matthew Lynn
12 August 2016
Crazy valuations for untested companies. Fortunes minted overnight. Promises of new technologies that will transform whole industries. To anyone who remembers the dotcom bubble of 1999 and 2000, that will all have a familiar ring to it - and they should be able to recognise the signs that something similar is happening now.
Some of the new internet businesses are achieving extraordinary valuations. Uber is now worth more than $US60 billion ($78 billion). Airbnb is raising a new round of cash that will value is at $US30 billion. Across the world, there are now dozens of "unicorns", as start-ups worth more than $US1 billion are known, and they are collectively worth hundreds of billions.
There is one big difference between today and 2000, however. This time around, the bubble is largely invisible. The huge valuations are being achieved in private placings - and not on the listed exchanges. The trouble is, that doesn't mean it isn't dangerous. If the bubble bursts - and let's face it, most do eventually – then the losses will ripple out through the financial system and end up hurting all of us.
The dotcom bubble of the turn of the century has gone down as one of the epic speculative manias of all time. Young guys in chinos and polo shirts could raise millions, and blow it just as quickly. Boo.com managed to burn its way through $US188 million in a year trying to build a global fashion store before going bust. Pets.com partied its way through $US300 million of other people's money before crashing spectacularly. Investors were hurling money at entrepreneurs who promised they could transform the global economy and make billions. A few did. If you bought shares in Amazon even at the height of the mania, you'd have done well. Most, however, disappeared very quickly.
Right now, there are plenty of signals that something similar is happening. There are huge valuations put on very new companies.
At its latest fundraising, the high profile taxi app Uber was valued at more than $60 billion. That makes it a fifth more valuable than BMW, the biggest and most profitable manufacturer of luxury cars in the world, and more than a third bigger than General Motors, which has been in the business of getting people from A to B for a lot longer.
Airbnb, the room sharing site, this week raised a fresh round of funding that valued it at more than $US30 billion.
How does that compare to some older companies that are also in the temporary accommodation business? Well, Accor, owner of the Ibis and Novotel brands, and one of the world's largest hotel chains, is worth $US12 billion, only a third of Airbnb. Intercontinental Hotels, which owns Holiday Inn and Crowne Plaza, is worth less than $US9 billion.
In London, the food delivery service Deliveroo has just raised another $US275 million, to take its total funding close to $US500 million, and it is now valued at close to $US1 billion. At that rate, it will soon be worth more than JD Wetherspoon, the UK's second-biggest food chain after McDonalds.
The list goes on and on. Dropbox is valued at more than $US10 billion; Snapchat at more than $US18 billion; Pinterest at more than $US11 billion.
In total, there are an estimated 169 unicorns, with a combined valuation of $US619 billion - which is a lot more than Apple, the world's largest company.
Of course, some of them are great businesses - or will be one day. Uber, at the very least, has come up with a very efficient way of finding a mini-cab. Airbnb is a great way of finding a holiday rental. Dropbox is a really useful way of storing data.
That said, there were lots of great ideas around in 2000. Selling fashion online was going to happen, but Boo.com hadn't worked out how. Likewise, searching the internet became a vast industry, but it wasn't AskJeeves that capitalised on that (look them up if you want to - on Google).
Some of the new companies will succeed, but, in the natural way of things, quite a few will also fail - and just because they have taken an early lead does not mean they will be the winners.
Much like in 2000, the problem is that valuations have run wildly ahead of what companies are actually worth. That is classic bubble territory.