When investors reminisce about the height of the 1990’s dot-com bubble, they often reference a now-iconic image of market bliss, of taxi drivers turning into day traders and handing out stock tips to passengers. In 2017, the picture is apparently not so different, except now, of course, instead of cabbies we have Uber drivers, and people can buy stocks with the tap of a smartphone screen.
Unlike the first dotcom burst of 1999, triggered by the sudden collapse of companies on the stock market [see video], the second bubble has largely been founded on the eye-watering estimations that a new generation of tech companies have managed to achieve through private fundraisings. Across the globe, scores of businesses have reached ‘unicorn’ status, the term given to private tech companies that claim valuations of $1 billion or more. Despite concerns, the second dot-com bubble is about to be pumped with yet more hot air, thanks to another swarm of extremely overpriced businesses.
The most high profile of these is Snapchat, a company that many people over a certain age will probably never have heard of, but has quickly become the social network of choice among millennials that are adept at using social media but not paying for it. With almost 160 million active daily users seen by the end of 2016, a significant increase on the 46 million users the company had in 2014.
With Snapchat valued at $15 billion (2017), these numbers have become a symbol of the oversized ambitions of this generation of start-ups. But these private market valuations are also one of the most misunderstood traits of the tech boom! Snap Inc. arrived to the stock market at the beginning of March welcomed with open arms. But since its arrival, has shown to be losing money at a rapid rate because its services are free for all. Launched just 5 years ago by three ex-Stanford University students, its growth has been staggering but the possible bubble brewing in the start-up market could pop faster than you can say ‘Snapchat’.
Of course, it could prove to be the next Facebook or Apple, but the same was said about Twitter and LinkedIn and they quickly proved to also be over-hyped. Snapchat is likely to be followed by a string of other hot tech firms, including Pinterest, Dropbox and Spotify. Today’s tech bubble may not burst viciously, with more of a slow-motion ooze forecast, unlike the dotcom boom in 1999. But many observers predict the beginning of deflation over the next 18 months with overinflated expectations for many of these companies leading to disappointment, with just a handful going on to be household names.
It may take only one flop badly and 2017 could be the year the dot-com bubble 2.0 finally goes BANG!