Make way for Tech Crash 2

[a_unique_person]

I have been watching the NASDAQ climbing higher and higher, and wondering how it could be. The fundamentals of the share prices still point to the index being more suited to heading for the 1,000 mark then bouncing back up to the 2,000 mark.

So what do I see today but this

http://www.business2.com/articles/mag/0,,52940,00.html?cnn=yes

Yep, shares in AskJeeves are skyrocketing again, though god only knows why.



Why This Tech Bubble Is About to Blow
A year after the market hit bottom, tech stocks are back to dangerously inflated levels. Sadly, there's only one way this can end.

By Paul Sloan, Michael V. Copeland, November 2003 Issue

As is their normal state on a busy September trading day, Seth Tobias's phones were lit up like Times Square, and at the other end of the line was a broker with an investment "idea." "Have you looked at Vignette (VIGN) lately?" the salesman urged. "Or Verso Technologies?" Both were software companies that had raised millions of dollars in boom-era IPOs and then proceeded to lose sizable portions of those millions every year thereafter. During the crash, both stocks fell by more than 95 percent, took big restructuring charges, and vanished from public consciousness. Tobias, who runs the $400 million tech-focused hedge fund Circle T Partners, hadn't given either company a thought in years.

Well, their day had come again, the broker said. Vignette had tripled to more than $2 a share, and the broker assured Tobias it was poised for another heroic move. Verso was up more than 1,500 percent to nearly $5, and besides, it was in the same hot industry as Sonus Networks, which was up nearly 4,000 percent! Why shouldn't Tobias get some of that action? His by-the-numbers approach to tech investing certainly wasn't printing returns like that. So Tobias took the plunge, slipping $2 million of his limited partners' money into two stocks he knew hardly a thing about

[corplinx]

I thought people learned something about zero value stocks from the last crash. I guess not.

Here is a hint for buying any stock. Ask yourself, does the company have value?

A company like askjeeves or whatever has zero value. They have no plants, inventory, distribution, etc. What they do have is a room of depreciating Dell servers and a ping pong table in their breakroom. If a company like this goes belly-up, there is nothing of value for it to liquidate.

Amazon however, has value. Yahoo, no value. The only thing Yahoo has of value is its name which has become a brand. However, the name itself could dissappear and noone would miss it. They don't exactly have the recognition of Nike or Coke.

[a_unique_person]

Not quite that simple. Rambus had a good thing going. They only asset they had was a good piece of intellectual property, RDRAM. However, their IP lawyers suffered a bad attack of hubris, and screwed the company. If not for unreasonable greed, they would be a very profitable company now.

[Iconoclast]

Originally posted by corplinx
A company like askjeeves or whatever has zero value. They have no plants, inventory, distribution, etc. What they do have is a room of depreciating Dell servers and a ping pong table in their breakroom. If a company like this goes belly-up, there is nothing of value for it to liquidate.

Amazon however, has value. Yahoo, no value. The only thing Yahoo has of value is its name which has become a brand. However, the name itself could dissappear and noone would miss it. They don't exactly have the recognition of Nike or Coke.
I think you're oversimplifying this corplinx. Google has nothing but server farms but it's value is sky high, there's more to determining value than capital assets, in Google's case they've cornered the market in search engines, their customers love them because they provide a service head and shoulders above it's competition.

Similarly, EBay has no real assets but it is perhaps the company that's made more money from the internet than any other, because they provide a service that has broad appeal and works well.

[Charlie Monoxide]

Google has nothing but server farms but it's value is sky high, there's more to determining value than capital assets, in Google's case they've cornered the market in search engines, their customers love them because they provide a service head and shoulders above it's competition. Actually Google's biggest asset are the vast number (IIRC 78 million unique/month) of eyeballs (make that 156 million).

I was in the Bay area during the last tech bust. Investors, like voters have short memory spans ....

Charlie (mutually invested only) Monoxide

[TillEulenspiegel]

Bahhhh stocks, I thought you were talking about some kind of engineering challange

[c0rbin]

Actually Google's biggest asset are the vast number (IIRC 78 million unique/month) of eyeballs (make that 156 million).

You did not factor in that colony of Cyclops in Greece and that Pirate Support Group in Barbados.

[Skeptic]

A company like askjeeves or whatever has zero value. They have no plants, inventory, distribution, etc. What they do have is a room of depreciating Dell servers and a ping pong table in their breakroom. If a company like this goes belly-up, there is nothing of value for it to liquidate.

You're oversimplifying a bit. If you looked at (say) the nuclear scientist refugees from Europe during WWII, their "liquidation value" was more or less a few dozen suits of old clothes. They had no money or assets. Their value for the war effort, however, was enormous--they had the know-how to build an atomic bomb.

Similarly, it doesn't matter what assets yahoo! has as long as it provides a superior SERVICE that people are willing to use and therefore advertisers are willing to pay for. Yahoo! and google, for that reason, are profitable. Amazon, on the other hand, might have lots of assets--inventory--but unless it find some way to actually MAKE A PROFIT on the book it sells, it will not be profitable, and the stock value will (eventually) drop drastically.

A company's inventory is usually only a very small part of its worth. What the company's stock is worth is NOT the value of assets it owns divided by the number of stocks. It is the market's prediction of how much profit a company will make by providing a service or product during its lifetime.

Of course, your point--that many of the dot-com companies are worthless--is true. But that's not because of their low inventory. It's because they have no realistic money making plan at all except for the "if you build it, they will come" wishful thinking website design.

[komencanto]

Google also has the information they´ve build up over time surfing the web, and their pagerank algorithm.
Yahoo? It doesn´t have very much except readers and website infrustructure. Amazon is going great, because it is a great service. It´s difficult to complain about amazon =)
AskJeeves? Is that really still going? Havn´t seen any annoying popup ads for ages.

[corplinx]

I didn't say it was black and white. Notice I said yahoo has some value because their brandname and the fact they are highly visited.

Google is its own phenomenon. Its its own verb "google for it". It has value in its name mostly.

However, if google went under today, what would the stockholders get?

[Iconoclast]

Originally posted by corplinx
Google is its own phenomenon. Its its own verb "google for it". It has value in its name mostly.
You should read up on Trademark law.

If the word "google" becomes recognized as a verb then the name "Google" will have zero value since it will lose it's trademark status.

[Ziggurat]

Originally posted by corplinx

However, if google went under today, what would the stockholders get?

Actually, a fair amount. Google has a lot of really good search engine technology, which competitors like Microsoft or Yahoo would be willing to pay for. They also have a brisk buisiness selling search appliances - stand-alone web servers that corporations plug into their own networks to index their own web sites, so customers/employees can do quick searches of that company's content. They've got a lock on the market for those things, and it would be quite easy to find a buyer willing to pick up that market. Unlike many other internet businesses, that part of Google's business doesn't rely on advertisers, which separates it from the crazy euphoria and bust that sank so many other companies.

[Charles Livingston]

Originally posted by Iconoclast

You should read up on Trademark law.

If the word "google" becomes recognized as a verb then the name "Google" will have zero value since it will lose it's trademark status.

I dont think just becoming a verb is enough to bring on the label of 'generic'. If people are using the term google it to mean 'search using Google' then it would not be generic, ie 'google it' would still indicate a specific service (ie google.com). Only when the common use of 'google it' becomes teh phrase for using any search engine to search will it be generic.

[Iconoclast]

Originally posted by Charles Livingston
I dont think just becoming a verb is enough to bring on the label of 'generic'. If people are using the term google it to mean 'search using Google' then it would not be generic, ie 'google it' would still indicate a specific service (ie google.com). Only when the common use of 'google it' becomes teh phrase for using any search engine to search will it be generic.
Well, a trademark is a proper adjective only, allowing it to be used as a noun or a verb puts the trademark owner at risk of losing protection. The FindLaw (http://library.lp.findlaw.com/articles/file/00342/000379/title/subject/topic/intellectual%20property%20law_trademark/filename/intellectualpropertylaw_1_237) site explains this fairly well.

In the UK, "Hoover" has forever been used as a verb meaning "to vaccuum", as has "Xerox" in the USA for "to photocopy", and it's generally considerd that these trademarks would be removed if either company tried to contest their use in court, see here (http://news.bbc.co.uk/2/hi/uk_news/3006486.stm).

Note also that Google lawyers firing off letters to all and sundry who misuse the Google trademark is not due to them being complete b*stards, a trademark owner is legally obliged to attempt to pursue usage violations. This explains why, if you search for the word "google" at www.dictionary.com, you'll find a spiel about the Google company but no verbs listed as definitions.

My favourite case involves the Escalator brand moving staircase company. Though you wouldn't know it now, the word "Escalator" was invented by them, and the common verb "Escalate" is simply a back-formation. These days any moving staircase is called an escalator, regardless of brand.