Friday, May 13, 2011

Dot Com Bubble II

I am a dinsosaur. I freely admit it. In the heady days of Dot Com Bubble I, it was often said that old foggies didn't "get it", when they stared open mouthed at insane valuations. A decade after that, I still don't "get it". Can somebody explain to me the valuation of $ 8.5 bn for Skype, which Microsoft announced buying a couple of days back.

Skype  still makes no money after being around for a fair bit now. Make no mistake; its an excellent product - I am an unadulterated fan and user of Skype. Its just that most users, and there are millions of them,  use it for free and don't spend a nickel. Skype doesn't make a profit and there's nothing in sight as to how they might make one. A year and a half ago, Skype was sold for less than $ 3bn - what has happened in a year to almost triple that valuation ??

Or take Linked In - a so called business networking site that I abhor. At least it turns a profit. But its turnover is in the low millions. It has just filed for an IPO for a reputed valuation of some $ 3 bn. When you see sales multiples in the region of 10, you ought to do a double take.

The Skype acquisition has every hallmark of the lashings of an alpha male who has been deposed. The most charitable description of Microsoft is that it has lost its mojo. Nothing like a headline grabbing acuisition to try and rediscover it. Especially since it has tons of cash and doesn't know what to do with it.

Couple all this with the atics of Chinese intenet companies that are in unseemly haste to list in the US. And the jaw dropping valuation of Facebook  which I have alluded to before here. It appears Dot Com Bubble II is truly well and underway.