Benner on Tech: The Trouble With High Valuations
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The danger of super high valuations is that they set super high expectations.
The way this plays out on the public company side is that investors have been dumping stocks when companies show weakness. This is happening amid an ever-rising market. Bloomberg data shows that the S&P 500 has gained nearly 48 percent so far this year, and the Nasdaq is up more than 260 percent.
Look no further than the recent earnings results from Twitter, Yelp and GrubHub to see how displeased investors react when companies miss their profit and revenue projections or give lower guidance going forward. When those companies reported signs of weakness, investors dumped their stocks.
On the private company side, Secret, the anonymous messaging site, is shutting down and returning what’s left of the money that it raised. (No word on whether this includes the $6 million the co-founders took out of the company for themselves.) The company had been valued at $100 million by venture investors including Index Ventures, Redpoint Ventures and Kleiner Perkins. But the site never got the traffic necessary to support that type of price tag. Apparently the app, which traffics in anonymous gossip, had limited appeal. Note that Secret was relatively small compared with the many billion-dollar startups that regularly pop up.
Big Deal Chatter
Salesforce.com is reportedly working with bankers to field acquisition inquiries. The stock soared on the news, and the short list of possible acquirers is, well, really short. The company’s market cap is just under $49 billion. Factor in the fact that any buyer would have to pay a premium to the current valuation, and it’s hard to come up with many companies that could pay more than $50 billion for an acquisition. Microsoft is emerging as the buyer that the media most wants to see do the deal. Maybe we’ll someday get to write about a combined company called Microsales?
Baidu, the Chinese Internet search company, said its quarterly profit fell as it spent a lot of money on mobile products. (Wall Street Journal)
GrubHub’s earnings came in below Wall Street estimates even though revenue soared. (Chicago Tribune)
Nokia’s network business stumbled in the first quarter, and the stock price fell. (Wall Street Journal)
Yelp’s quarterly profit and sales forecast came in well below analysts’ estimates, and the company’s stock fell as much as 17 percent in after-hours trading. (Bloomberg)
Reporting today: LinkedIn, FireEye, Mobile Iron and Time Warner Cable.
Snapchat’s traffic for its much-vaunted Discover platform has plummeted, and some of the publishers on the service won’t renew when their deals expire this summer. (the Information)
Uber is going to start a big same-day delivery program for online shoppers that uses Uber drivers. (TechCrunch) The company has raised more money than all of the other ride-hailing startups combined. (CB Insights)
First Round’s Dorm Room Fund, which relies on college kids to make investments in student startups, is an example of how one VC firm is dealing with the fierce competition to find early startups. (Wall Street Journal)
Slow Ventures, which makes early stage investments, has raised a $65 million seed fund.
Foxconn is talking to U.K. investors about raising a $1.7 billion fund for green energy initiatives. (Bloomberg)
People and Personnel Moves
Marissa Mayer got a 69 percent raise at Yahoo, and the Chief Executive Officer is now the top paid female executive in the S&P 500. (USA Today)
Erik Huggers will become chief executive officer of the music video site Vevo. Huggers previously worked at Intel on its effort to create a Web-TV service. (Bloomberg)
Mark Troughton has been named the first president of Whisper, an anonymous messaging app. Troughton was previously the Americas president of the lender Wonga. (TechCrunch)
James Bursey, a producer at the BBC’s Radio 1, will join Apple to work on the Beats music product. (Music Business Worldwide)
Alibaba is going to cap its head count. (Wall Street Journal)
Tesla is expected to finally announce its battery storage plan today. (USA Today)
Amazon acquired ClusterK, a product that helps customers use cheaper Amazon Web Services products rather than more expensive ones. (VentureBeat)
Apple’s problems with a part related to the taptic engine have resulted in limited supplies of the Apple Watch. (Wall Street Journal) The company could end up paying a “material” amount of back taxes to Ireland depending on the outcome of a European Commission investigation into the country’s tax policy. (Wall Street Journal) Apps that conduct medical research on humans must get ethic board approval. (9to5Mac)
Glu Mobile sold about 15 percent of its shares to the Chinese Internet giant Tencent for $126 million. (Re/code)
IBM researchers built a prototype circuit that could become the foundation for quantum computers. (Wall Street Journal)
Microsoft unveiled a slew of new products at this year’s Build Developers Conference, including a Windows 10 feature called Continuum for Phones that lets Windows switch its appearance across different screens and devices. (CNN Money) The company told developers that it would make it easy and fast for them to modify mobile apps to run on Windows smartphones, PCs, tablets and Xbox consoles. (Wall Street Journal) CEO Satya Nadella says the corporate cloud business will have a $20 billion annual run rate by fiscal 2018. The current annual run rate is $6.3 billion. (Re/code)
News and Notes
U.S. tech companies such as Google and Microsoft have ramped up spending on EU lobbying efforts in recent years. (Wall Street Journal)
Lowe’s is letting its customers 3-D print parts. (Wall Street Journal)
Someone tracked all of the hours she has spent on the Internet. (Motherboard)
If tech people were turned into adorable cartoon animals, this is what Silicon Valley would look like. (Quartz)
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Maria Lamagna at email@example.com