For 12 years any major tech IPO has been accompanied by chilling comparisons to the giddy days of 1999. "This is just like 1999 when anything.com could go public and day-trading kids in the copy room were sought out for their investing insights," we are warned, then "the tech bubble burst and fortunes built of dot-com sand were washed into the sea."
Stop it. This isn't 1999. If Twitter does a 2 for 1 trade ten minutes after going public this still won't be 1999. Zor Capital managing director Joe Fahmy scoffs at the comparison, noting that most of the analysts comparing today to the '90s were in high school at the time. It's the Gen X version of the Boomers' claim "if you remember Woodstock then you weren't there." If you remember the 1990s, you know it wasn't anything like this.
Even if investors are putting money into stocks again, they're doing so at a more measured pace and with lower expectations. In essence, the Fed is dragging them into stocks by ruining every other form of investment. "Psychology-wise there are a lot of people who still hate the market," Fahmy says in the attached clip. "Between the dot.com collapse and the financial collapse of '08, they're completely turned off."
Stocks aren't cheap, but they have about another 50% to run before we get to '90s-era multiples on S&P500 (^GSPC) earnings. The PE ratio in early 2000 was over 30x. Today it's under 20. Stocks are expensive and earnings have lagged gains in the market, but a little perspective is required.
CommerceOne was a B2B company that went public in 1999 and tripled on day one. By early 2000 it had gone to $600 before the company and stock flamed out spectacularly. It never earned a thing. B2B aggregator CMGI somehow lost $1.4 billion on less than $900 million in revenue in the year ending mid-July of 2000. Early that year CMGIs market capitalization was over $80 billion.
The triple-digit stock darlings of today are a different story. "Your Pricelines (PCLN), your Googles (GOOG), your Apples (AAPL); they're earning $30, $40, $50 a share," Fahmy howls. "That's a huge difference in valuation. These are real companies."
Stocks aren't cheap, but there's a sizable difference between a market due for a pause, and one poised for a 50% collapse. Something to keep in mind as the hype wagon gets into gear ahead of Twitter's IPO.
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