I'm sick of pundits like you. After going on about Amazoning, portals and e-time all year, are you now switching to the doom-and-gloom view?
You have to separate real-world effects from stock market values. The real-world effects of the internet revolution are and will be enormous, and they've only just begun. Customer propositions and business models are being radically altered. It's still the biggest business thing for our time. Stock market values are a different story. Let's consider famous value bubbles we have known and loved.
Which famous value bubbles did you have in mind?
The two serious comparisons are the US (and the world) in the early 1970s, and Japan in the late 1980s. It's hard to imagine now but, at the oil crisis trough in 1974, the whole US market was trading on a p/e of under five, down by more than 70% from its 1972 peak. The Nikkei index peaked at 40,000 in 1989 and, 11 years later, it has only recently clawed back from a 70% decline, to 20,000.
But my personal favourite bubble was the Kuwait stock market in the late 1980s, which suddenly went up tenfold, until investors realised that 90% of the market consisted of local taxi companies, and it collapsed back to zero.
Stay with serious comparisons in the US and Japan. What are the common themes?
All bubble markets have a 'magic dust', something that persuades normally rational people that 'this time it's different'. In the US in the early '70s, it was the 'synergy' of conglomerates, financial controls and management techniques - supporting sky-high values for acquisition- driven corporations such as ITT and Litton. In Japan in the late '80s it was the Japanese economy itself, with projections of 7%-8% real growth for ever, and the sky-high values of Japanese real estate (the square mile of land under the Imperial Palace in Tokyo had a higher valuation than California).
When magic dust blows in, the concepts of profit and discounted future cash flow are blown away. They're too old economy. People want to talk about revenue growth and market share, strategic values and synergies.
Analysts talk about momentum plays (aka the 'greater sucker' theory). P/e ratios climb into three figures or, if there are no earnings, are discarded in favour of price/ sales ratios.
Everybody starts acquiring everybody else in all-stock deals (but investment bankers get paid in cash). The shoeshine boys pile in, convinced stocks can't really carry any risk.
This sounds horribly familiar. So we've just had our own magic dust attack?
The internet has clearly been the magic dust of this bubble, producing its own new bubble lexicon - 'spaces' rather than 'markets', 'legacy businesses' rather than 'entrenched competitors with real customers and profits'.
Red Herring, the US e-business magazine, even led with the proposal that we were entering a 'post-economics' era. Now wouldn't that be nice.
OK, so which e-business valuations shall we drink a farewell glass to?
I've got two favourites at the moment. The first is theglobe.com. This IPO'd in the US last year, with a billion-dollar-plus valuation. Its business model (and I'm slightly paraphrasing here) is: 'An on-line community of members able to publish their own content and interact with others'. It's basically an advertising revenue concept.
It claims in its 1999 financial report: 'Results reflect an increased number of advertisers (ad revenue up from dollars 6 million to dollars 19 million), offset by higher advertising costs (costs up from dollars 22 million to dollars 70 million)'.
A fantastic bubble mission statement and business model - and I love the word 'offset'. Unsurprisingly, theglobe.com has lost more than 95% of its value over the past 12 months (and yet it's still worth almost dollars 100 million).
The second is internet space-based valuations of consulting businesses.
Racing to re-position themselves as e-business consultants, several have gone to the market with internet-multiple valuations. Word on the grapevine is that BCG was recently valued at dollars 30 billion - a 30x price/sales ratio, based on traded comparables (such as Scient, iXL and MarchFirst) at their peak in early 2000.
We consultants are very excited about this, and would love to convert dollars 1 million annual revenue into dollars 30 million in the bank earning 7% interest, while switching careers to something more fulfilling, such as developing a serious suntan in Martinique. Any takers please e-mail me today with a terms sheet.