LinkedIn. Groupon. Facebook. They are some of the biggest names in today’s tech world, and they also bring up some memories from not long ago: extreme investor fever, wild growth and hiring numbers, and barely profitable–if at all.
Are in for another dot-com bust? Let’s take a look.
By many metrics, the answers seems to be “no.” For one, today’s tech firms don’t suffer one of the main problems of the dot-com era: a lack of revenue. Most companies today have yearly revenues in the hundreds of millions and a couple are actually profitable. They’re also much less expensive given the amount of revenue they produce (Enterprise Value/Revenue) and actually have a positive cash flow from their operating activities.
One last point of interest: Most companies today have been incorporated for much longer than their dot-com counterparts, and this points to one of the starkest differences between the two eras. Many dot-coms were marked by a rush to raise capital followed with burning through that cash in mere months, only to have to resort to raising more capital–one option being an IPO.
Of course, we might just be in a bubble that looks incredibly different from the last one. It’s tough to say whether companies like Groupon, Pandora and Facebook have long-term sustainable business models. We’ll just have to wait-and-see.