The poster boy for the dotcom bubble has to be the infamous Henry Blodget, the former Wall Street analyst.
At the height of the dotcom boom, Mr Blodget was the top Internet/E-commerce analyst and his research reports were famous for their enthusiastic support for lofty valuations.
When the dotcom turned into a dotbomb, and millions of investors saw their paper fortunes evaporate in the course of a massive market correction, Mr Blodget became a favorite target for Wall Street critics.
The SEC banned him from the securities industry and fined him for sending emails with different opinions to that of his published research reports.
These days he is editor of New York based Business Insider and although he is barred from working as an equities analyst, this doesn’t prevent him from continuing to publish analysis of companies and trends in tech.
So when people ask “Is there a new tech bubble?” because valuations of Facebook, Twitter, Zynga and other tech high flyers are rising faster than their revenues, Mr Blodget is well positioned to compare the present with the past.
He recently made a presentation on this topic to a group of private investors and his conclusion was: “No. But there are other things to worry about.”
Here are his key points:
- Valuations of Facebook, Zynga, Groupon (but not Twitter) are high but justified.
- A key difference with Bubble 1.0 is that “crap” companies are not rising.
- The tech sector appears to be in a cyclical boom rather than a bubble.
- A key worry is that US stock market fundamentals are “scary.”
Mr Blodget estimates that US stocks are overvalued by about 40 percent. A market correction would have a chilling effect on tech company valuations.
You can see his slide deck here.
- - -
