I’ve always been a fan of Marc Andreessen. By the time the World Wide Web came into its own, I had already been a long-time user of and creator on the Internet. Marc’s Mosaic changed the way in which the Internet was viewed. It was fascinating, and I had to be a part of it. I was no software engineer, though; I was a music education student in college. I used the new tools to create web sites for the things I was involved with, like my school’s music department. Mosaic eventually became Netscape, and the Internet and its software became commercialized. Companies could now exist whose sole purpose was within the online realm.
Wall Street loved it, and it wasn’t too long before investors loved it so much there was no concern for real value. The market crashed, led by the tech sector.
Recently, the biggest companies in social media, a small realm within technology, have either had an initial public offering or are planning one. LinkedIn, Twitter, Facebook, and Zynga are hot right now, but some investors are concerned that most of the billions of dollars of value within these companies is based more on hype. Marc Andreessen is now a venture capitalist, and he believes that this is a great time to invest.
This is from a recent interview with the New York Times:
I’m certainly not an investment adviser, but on a 30-year basis, these things are cheap. If you compare how big industrial companies like G.E. are valued compared with big tech companies like Microsoft, Cisco, Google and Apple, tech stocks have never been valued more poorly in comparison. So not only is there no bubble — these prices are reflective of the fact that the market still hates tech. This bubble talk is about everybody being unbelievably psychologically scarred from 10 years ago.
As of writing this, LinkedIn has a market cap of of $9.41 billion. Facebook shares are going for $35 apiece on SharesPost, valuing the company at $82 billion. Twitter is valued above $8 billion, and Zynga is valued above $14 billion. If there is no bubble, there must be buying opportunities. Marc Andreessen’s venture capital firm, Andreessen Horowitz, is invested in Twitter and Facebook, but likely at a much better price than investors can receive today.
Is it fair to compare the valuation of Internet-based companies with the valuation of big industrial companies? Marc says tech companies are cheap compared to General Electric, so here’s a quick rundown of P/E ratios, all at the time of writing.
- GE: 15.84
- Google: 20.66
- Microsoft: 10.70
- Cisco: 12.29
- Apple: 17.14
Microsoft and Cisco have a cheaper valuation than GE, but Google and Apple appear to be more expensive, at least when compared to these companies’ earnings. Are Microsoft and Cisco opportunities just because they are valued lower than General Electric?