In today’s Morning Newsletter, "Social Bubbles," Hedgeye CEO Keith McCullough pulled no punches critiquing the growing social media bubble in light of news that Facebook bought Oculus VR (a virtual reality gaming company) for $2 billion.
“Imagine that – if there were only one bubble, tulip, or social media stock left in the world – what on earth would we pay for it?... I have to give it to the folks @Facebook. They’re nailing it on “scarcity value.” I didn’t know that either of their last two acquisitions existed. After spending $21 billion on WhatsApp and Oculus, FB’s stock has broken my mo-bro line of $67.52 support too.”
We wanted to find out what you thought. So we asked: Are social media stocks like Facebook and Twitter in a bubble right now?
At the time of this post, 68% of respondents said YES and 32% said NO.
As Keith tweeted, “Social Media bulls still not putting a dent in our poll - they may have if it was March of 2000.”
In this particular survey, not only did a convincing majority of people vote YES, but there were several thought-provoking responses explaining why.
- “I work for largest utility company in California and we own a nuke, NG power plants, 1000's of miles of transmission and pipelines and NG storage fields; market cap approx 20 billion. WhatsApp free messaging service is worth 19 billion. It is all fun and games until it pops.”
- “This smells so similar to the dot.com bubble a decade and a half ago. If you look back, there were hundreds of internet names, yet only a few made it -- but they made it big. There’s no reason to think the same dynamics won't play out this time. A couple big winners -- and a lot of bagels.”
- “MASSIVE bubble....which doesn't burst till there is a catalyst. What is ratio of (primo) Jobs/Mkt Cap of Money-Losing Companies (public & private)? 100 times what it was in 2000? 1,000 times? Policy response then was we "needed" a housing bubble to avoid deflation. What will it be this time?”
- “It looks like a one-sided bubble. Facebook and Twitter are among the few that appear to have lasting value. Others with small footprints, one-trick ponies, or non-economic business models appear to be frothing beneath the surface. When they pop, FB and TWTR will be bruised, but they will recover. For the others... pets.com sock-puppet, anyone?”
Of those who voted NO, one commenter said “bubbles form under the belief prices cannot collapse; 70% bearish here shows not a bubble.”
Another noted, “Companies may be over-valued, but that doesn't indicate a bubble (that's going to ‘pop’ suddenly). The price of some of these stocks may deflate over some period of time, with advertising spends tapering off, but it's definitely not a bubble; these companies have significant revenue, where in 1999 some, maybe most, basically didn't --- that's the main difference.”
One NO voter says it’s too soon to tell: “We are in early innings of the social revolution as an ongoing business model. Not sure we can see exactly how this model with morph.”
If we are indeed in a social media bubble, and it does pop, watch out.
