Economist: A new round of technology bubbles but don't panic

The Economist's website wrote recently that a new round of technology bubbles is looming, but the public need not panic because the technology bubble, even if it is shattered, is largely in the private market and will ultimately be far less destructive than the technology bubble of the 2000. The strong economic strength of big companies can also resist the damaging effects associated with them. The main contents of the Economist's website are as follows.

15 years ago in December, it was only a few weeks before the dotcom bubble burst. Now, old people who have experienced that fiasco may have seen some similar warning signals. Bankers and lawyers have been squeezed out of San Francisco's central business district for high office costs, and all of the 8-storey high-rise buildings under construction are owned by technology companies. In 2013, about one-fifth of graduates from America's top MBA schools chose to join technology companies, nearly twice times the proportion of graduates in investment banking. Janet Yellen, chairman of the Federal Reserve, has warned that the value of social media companies is Yellen and that the problem is being overlooked by most people. Today, as Alan Greenspan, his predecessor, has experienced in 1999 years, Mr Greenspan Yellen a similar warning.

Good corporate governance is once again overlooked. The Chinese internet giant Alibaba Group, a successful IPO in New York in September this year, used a Byzantine legal framework, but the company's share price has soared 58%. Executives at start-up companies, such as Uber, have also shown a defiant arrogance.

However, judging from the financial standards of the Internet age, the current technology industry does not seem to have encountered a bubble. The Nasdaq composite, which is made up of major tech stocks, is expected to have a 23 times-fold earnings ratio, far from the 100 times of 2000. In 2000, Barron, the industry's leading investment magazine, published an analysis that said 51 listed technology companies would spend all their cash in a year. In this year's December 6, Barron's published a similar analysis, but said only found 5 listed technology companies face the plight of financial instability.

Now, however, the phenomenon of financial excesses has been partially hidden outside the public eye, there are two main areas: inside big technology companies such as Amazon and Google, which spend a lot of money on warehouses, offices, people, machinery and other companies; There is a thriving private market in which wind invests the company and other traders in competing to invest in emerging technology companies.

First, look at the spending spree of large, publicly traded technology companies. Facebook is a big example: This October, the company said its 2015-year operating costs would grow 55% to 75%, much higher than its revenue growth forecast. There is no need to mention the small companies that are run by the financially strapped entrepreneurs. Today, Silicon Valley's logo is largely focused on those who have become the world's biggest and most lavish investors. For me, companies such as Apple, Amazon, Facebook, Google and Twitter have already reached $66 billion trillion in total investment over the past 12 months. This figure includes capital expenditure, research and development spending, the acquisition of fixed assets and cash for business mergers and acquisitions. This amount is 8 times times as much as they invested in 2009, or even twice times the total investment in the venture capital industry. If Apple is not counted, these investments also account for the bulk of the cash flow generated by these companies. Overall, the 5 technology companies currently invest in more than one global company, and they invest more than any other company in the world, surpassing Russia's energy giants Gazprom, PetroChina and Exxon Mobil, The energy giants invest about 40 billion to 50 billion dollars a year. The 5 technology companies have a total of 60 billion dollars in property capital and equipment assets, almost as much as GE. However, their total number of employees is only more than 300,000. Google also claimed that the company had decided to "continue on the forefront of investment".

Big companies also have speculative bets to increase new products and ensure that they can resist the adverse effects of technological change. Amazon, for example, invests heavily in content and recently acquired video streaming company Twitch. In addition, Google has stepped up its efforts to invest in unmanned cars, robots and household thermostat services. Facebook has bought virtual reality head-worn equipment company Oculus VR. Mark Zuckerberg, Facebook's chief executive, also claimed that the investment would not be immediately rewarded: "It will take a few more years to get a return." ”

So what does it mean to spend the money? Apple still has huge profitability, and other companies have bad earnings records. Google's return on capital has fallen to about 20% per cent after the cost of stock options has been counted. Amazon has not produced a lot of cash, and in the long run it seems ominous. Few companies know how to spend a tens of billions of dollar plan overnight.

Companies such as Google, Facebook and Amazon, which have been dominated by powerful managers, are not unduly constrained in spending money when previous industry tycoons, such as Nokia, Yahoo and Microsoft, have been undertaking large-scale business acquisitions in related areas where they are underperforming. Today, the 5 biggest star companies in the tech industry have a lot of money, and a lot of it is overseas, and it's hard to get into the country without paying taxes. In this way, these companies have a greater incentive to spend money.

The second biggest bubble in the tech industry is in the private market. This can be seen by Uber on December 4 with a $40 billion valuation of $1.2 billion in private equity. Baidu, the biggest Chinese market search engine, also plans to buy a stake in Uber. According to VentureSource, a market research firm, 48 U.S. companies that have been backed by venture capital companies have valued more than $1 billion trillion, compared with just 10 at the height of the dotcom bubble. This October, a software company called "Slack" valued $1.1 billion trillion, a year after the company was established. For now, this year seems to be the highest in venture capital since 2000.

Part of the situation is that some of the money has shifted from the stock market. Entrepreneurs are eager to avoid the adverse effects of the bureaucracy in IPOs, and now they have alternative ways to finance them and give them the right to trade. In addition to venture capital firms, more and more institutional investors are also investing in private technology companies. Unlike 2000, the companies they invest in have a certain scale. Uber, for example, expects the company's gross revenue to reach $10 billion by the end of 2015, and Uber will set-aside about 20% of its commission from it.

However, since many investors are chasing a handful of companies, many venture companies are worried about a bubble in valuations. One of the best-known is that Anderson (Marc Andreessen) said the valuations were "overdone" and called for greater regulation. At the same time, some bankers have warned that recent successful fund companies have opted out of their profits, and that this has spurred some VCs to take a "betting lottery" approach. Among the tech companies that have recently been publicly listed, the lending Club, the Peer-to-peer online loan platform, and the new relic and Horonworks of two big data software companies.

If large listed technology companies and emerging private companies can maintain a high rate of growth for years, the "crime" of these companies can be ignored. So far, these companies have not shown signs of abating. However, if these companies were to slow down soon, the current investment boom would look like a terrible mistake that would not only hurt their own interests, but would also hurt the interests of the investors who financed them, which is, of course, a mistake for investment companies and investors.

But for society as a whole, there seems to be no need to panic. Because during the period from 1999 to 2000, start-up companies and technology giants created jobs, and they also invested in new technologies and infrastructure to promote long-term economic growth. This time, however, the adverse effects of the slowing growth of the technology market will not spill over into larger areas, as the impact is largely confined to private markets and a handful of large companies with strong cash strength. Silicon Valley is still awash in glitz, bubbles, talent and excess. But even if the bubble were to burst one day, the damage would surely be much weaker in 2000, so there was no need to panic.

(Responsible editor: Mengyishan)