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October 19, 2019 08:34 pm

Why The 'Not-Com' Stock Bubble Is Popping

"In the dot-com bubble, public investors got hosed," remembers The Atlantic. "Today, it's public investors that are doing the hosing."When the web browser Netscape went public on August 9, 1995 -- the day many cite as the beginning of the dot-com bubble -- its stock skyrocketed from $28 to $75 in a matter of hours, even though the company wasn't profitable. In today's market, the opposite is happening: Unicorns with no positive earnings are getting slaughtered at the gates. WeWork's valuation fell more than 80 percent pre-IPO when investors balked at its mounting losses. Peloton, Lyft, and Uber have also struggled to persuade public markets to grade them on a curve; all saw their stock prices fall on the day of the public offering. Institutions and retail investors are refusing to fork over to unicorns the valuations that private investors were expecting -- particularly Softbank, a major backer of Uber, Lyft, and WeWork. This isn't a picture of mass mania. It's a picture of public sobriety, where the masses are diagnosing an acute fever in private markets. Second, there is little sign of a crisis for firms whose main product is pure software. Judging from the news, you might think this has been a terrible year for technology companies. But tech IPOs have been strong for the past two years, "as long as what you're buying is actually a real tech company," JP Morgan's chair of market and investment strategy, Michael Cembalest, wrote in an October 7 research note. By "real tech," Cembalest was referring to companies whose principal product is software, rather than, say, WeWork, which is in truth a real-estate company caught wearing an Actual Tech Company costume before Halloween. The article makes it case by citing three "real tech" companies which grab fewer headlines because they sell cloud services or business-to-business software. "But all of them are trading more than 100 percent above their listed IPO price."

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