Tech Bubble Redux?

What follows is an excerpt from our quarterly newsletter...

Bay Area natives have vivid memories of the tech bubble that burst in 2000. With mind-boggling house prices, cranes overtaking the S.F. skyline, and traffic popping up at any hour anywhere, it’s natural to wonder whether we’re reliving the turn of the century.

Tech stocks have reached a new post-bubble high as a percentage of the U.S. stock market. Apple’s market capitalization (the value of all of its stock) is three quarters of a trillion dollars. Tech companies are the top five and six of the top seven most valuable companies in the world.

We won’t review the technical differences – earnings, profitability, growth – between today and 2000’s tech sector. Instead, we’ll pass along a recent story that may speak to a broader narrative.

Pets.com is an infamous example of the tech bubble’s irrationality. The hype was that Pets.com would upend the pet supply market. Despite earning revenues of just $619,000 in 1999, it zoomed to a $1 billion valuation. That billion dollar paper value quickly vanished after the bubble burst.

Seventeen years later, in April PetSmart acquired pet supply site Chewy.com for $3.35 billion, the largest e-commerce acquisition in history. Chewy had close to $900 million in revenue last year. 

Investors’ instincts during the tech bubble may belatedly be coming true – tech has turned into a dominant industry. The market may have been a couple decades ahead of itself. The idea is best summed up by venture capitalist Marc Andreessen, “there are no bad ideas, only early ones.”