One of the major factors contributing to sky-high stock valuations in recent years has been the performance of tech stocks. Much of the gains in stock markets has come about due to the performance of Apple, Amazon, Facebook, Google, and Netflix. Nearly two decades after the burst of the dotcom bubble, investors have forgotten all about the lessons learned back then, and that will come back to harm them.
But in a worrying sign that portends the coming of the future stock market crash, this year has seen pretty abysmal performance from several tech companies whose IPOs were supposed to go off with a bang. It began with Uber which, after jettisoning its founder, has floundered, trying to regain the momentum it first picked up as a disruptive tech company. Uber’s performance was mirrored by Lyft, and now there’s a third major casualty: WeWork.
WeWork didn’t even have a chance to offer its IPO, as the company continues to burn about twice as much money as it brings in. While the IPO had been championed by Japanese bank SoftBank, WeWork’s largest investor, other potential investors began to look askance at WeWork’s finances.
The net result is that WeWork’s estimated valuation dropped from nearly $50 billion at the beginning of the year to about $10-12 billion today, its IPO has been canceled, and its founder was forced out. Don’t be surprised to see WeWork go out of business in the next few years as the economy turns downward. With so many young firms operating with unrealistic finances and no firm plan for making a profit, we’re seeing a return to the days of the dotcom tech bubble.
Investor euphoria and cheap money are the only things keeping this bubble going, but just like the dotcom bubble, this one will end badly. Discounting goods and services to build up market share is a recipe for bankruptcy, a model that hundreds of firms have followed to the poorhouse. Happy feelings won’t counteract what is by now a bubble well past the bursting point.
Investors need to realize that we’re in the end stages of the bubble and protect their savings and investment assets accordingly. By investing in gold, they can maintain the value of their retirement savings and continue to grow their wealth even as the economy turns south. But time is a-wasting and they won’t have forever. Those who wait too long and fail to protect themselves against the crash will lose out badly.