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Sky high valuations have Schmidt wondering if we're headed for another bubble
Are we entering another tech bubble? Eric Schmidt thinks so.
The chief executive of Google (soon to be former chief) gave his candid opinion in a Swiss magazine called Bilanz. When asked about the impossibly high valuations of companies like Facebook and Zynga, Schmidt didn't hold back: "There are clear signs of a bubble ... But valuations are what they are. People believe that these companies will achieve huge sales in the future."
It's hard to believe that just as we're emerging from a crippling recession, we're diving head-first right back into another bubble, but the signs are there. Last month, Demand Media's public offering soared beyond expectations to close on its first day at more than $23, after starting out at $17. And that's a company that churns out content like Ford assembles a car.
And then there were the reports that emerged on Thursday that Twitter is in quiet discussions with Google and Facebook about a possible acquisition to the tune of $10 billion. Some, like Shira Ovide of the Wall Street Journal, are challenging the valuation, which is 200 times higher than the company's revenue.
"Has any real business ever been slapped with such a high multiple?" Ovide asked on Thursday. "At $10 billion, Twitter is valued at $105 for each of the 95 million tweets its users write every day. (I’ll wait for my share of the check for those Twitter messages.)"
Reuters blogger Felix Salmon took issue with Ovide and others who are calling foul on Twitter's steep valuation. "If Twitter is 20% the size of Facebook, and Facebook is worth $50 billion, then Twitter can be worth $10 billion, no?...In the history of humanity, everybody who owns the means by which people communicate and socialize with each other has been very rich and powerful."
As some may recall, Facebook was recently valued at $50 billion (B-I-L-L-I-O-N), following a massive $1 billion funding round led by Goldman Sachs.
And then it's hard to leave Groupon out of this one. The company has been valued at $15 billion and reportedly has plans to IPO this year, but some are questioning the validity of the company's worth. Groupon has exploded like a fireball since it first debuted in 2008 with only 3,000 subscribers and seven staff members. Today, it's headcount is in the 4,000+ range and it numbers its subscribers at more than 46 million (sure to grow with the company's new unit in China). But with such a duplicable business model, is it really worth $15 billion? The 30+ investors who recently chipped into Groupon's $950 million Series D round of funding are pretty confident in the company's ability to make big money in the future.
Image source: maximumpc.com
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