Is the Higher Education Bubble About to Burst?

[Markface]

Came across http://www.independent.co.uk/life-s...ew-dotcom-bubble-going-to-burst-2287159.html" in The Independent today. A lot of economists are predicting another DotCom crash, what with many people over-estimating the potential value of web-based companies. Looking at what some of these guys turn in annually, along with their potential assets, I'm quite shocked websites like Twitter (a $45 million a year gross) can be potentially valued at $10b.

"During bubbles, investors stop valuing companies based on fundamentals and instead invest based on the expectation that prices will continue to rise and 'greater fools' will buy from them at a higher price - this process is unsustainable which is why bubbles eventually pop," says technology blogger Chris Dixon. "But when the economic fundamentals are strong, the last buyer can always hold on to the asset and collect a return through the asset's cash flows."

This is true, of course, but it may be a long time before that cash repays the original investment. To give you an idea of what these companies might really be worth, LinkedIn's value at the end of its first day of trading was roughly equal to the value of Sainsbury's. The British supermarket chain had sales of almost £23bn last year. LinkedIn managed just over £150m.

Zynga, the gaming company now attracting similar valuations, is more credible, with sales of $850m last year. But experts are not convinced. "I am sorry but when Zynga is worth $10bn something is a bit strange," says Alexandre de Rochefort of the video games maker Gameloft. "If this is not a bubble, I don't know what is."

 

[Pengwuino]

Came across http://www.independent.co.uk/life-s...ew-dotcom-bubble-going-to-burst-2287159.html" in The Independent today. A lot of economists are predicting another DotCom crash, what with many people over-estimating the potential value of web-based companies. Looking at what some of these guys turn in annually, along with their potential assets, I'm quite shocked websites like Twitter (a $45 million a year gross) can be potentially valued at $10b.

Wiki shows their revenue more like $100-$150 million with a valuation more like $7b. Still... that's ridiculous. A quick glance around wikipedia shows Microsofts investment gives Facebook a valuation of $15B but their revenue, which honestly amazes me to no end, appears to have hit $2B for 2010. At the least it's less ridiculous than Twitter.

The one thing that I just can't get over is... what do these companies do? Nothing really. They don't actually produce anything, they just... create ads. Although the one thing I wonder is whether or not there is a correlation between traditional TV ad revenue decline and the increase in ad revenue by google and facebook and what have you.

 

[WhoWee]

Wiki shows their revenue more like $100-$150 million with a valuation more like $7b. Still... that's ridiculous. A quick glance around wikipedia shows Microsofts investment gives Facebook a valuation of $15B but their revenue, which honestly amazes me to no end, appears to have hit $2B for 2010. At the least it's less ridiculous than Twitter.

The one thing that I just can't get over is... what do these companies do? Nothing really. They don't actually produce anything, they just... create ads. Although the one thing I wonder is whether or not there is a correlation between traditional TV ad revenue decline and the increase in ad revenue by google and facebook and what have you.

I'm waiting for one of them to go public through their subscriber base - then you'll see ridiculous - when people buy 1 or 2 shares - not as an investment - but as a wall/desk ornament - or a card for their wallet?

 

[CAC1001]

Two other bubbles are also forming it seems. One in higher education, because just like with housing, the cost of higher education has been skyrocketing in recent years, leading some to wonder if it really is in a bubble like housing was. The other is China, which seems to have a massive bubble of epic proportions forming, a real-estate bubble that makes the U.S. real-estate bubble look tame by comparison, a credit bubble, and a stock-market bubble. China also seems to be experiencing an art bubble, as art prices there have been skyrocketing, just like Japan did right prior to its bubble bursting.

 

[AlephZero]

Considering China's GDP per capita is in the range of $7000-$8000 depending which source you believe, bubble is a relative term. Especially since China doesn't pretend to be a democracy (well, it does pretend sometimes, but not very seriously).

I would keep a closer eye on commodity prices, especailly food. The global consequences of a bubble there could be much more than a few people with more money than sense makiing bad investment decisiions.

 

[CAC1001]

Considering China's GDP per capita is in the range of $7000-$8000 depending which source you believe, bubble is a relative term. Especially since China doesn't pretend to be a democracy (well, it does pretend sometimes, but not very seriously).

Yeah, but take a look at their real-estate prices. They have whole cities being built that are vacant right now. They have the largest mall in the world, also vacant.

I would keep a closer eye on commodity prices, especailly food. The global consequences of a bubble there could be much more than a few people with more money than sense makiing bad investment decisiions.

I think the global consequences of when the Chinese bubble likely pops will be severe. Perhaps not as bad as the U.S. real estate bubble, because so many securities were based on the U.S. real estate industry, but it will mean a major drop-off in demand from China. A lot of companies relying on China right now for much of their business I believe are going to get pounded.

 

[Pengwuino]

I'm waiting for one of them to go public through their subscriber base - then you'll see ridiculous - when people buy 1 or 2 shares - not as an investment - but as a wall/desk ornament - or a card for their wallet?

I'm not... entirely sure how that would work, but ok.

 

[WhoWee]

I'm not... entirely sure how that would work, but ok.

If someone purchases 1 or 2 shares for the novelty - rather than investment return - price/value doesn't matter as much. To make it "affordable" they can split a few extra times first.

 

[Pengwuino]

If someone purchases 1 or 2 shares for the novelty - rather than investment return - price/value doesn't matter as much. To make it "affordable" they can split a few extra times first.

I mean legally.

 

[CAC1001]

In an article about this in The Guardian, some say this is just the beginning for this Dot Com bubble, that it will probably really take of when Facebook likely goes public next year (I guess sort of like when Netscape went public in 1996).

 

[gravenewworld]

There's DEFINITELY a higher education bubble that's about to burst and Uncle Sam will be liable for it all. Read this excellent article:

http://nplusonemag.com/bad-educationI had no idea student loan debt was securitized and sold on Wall Street. I wonder if universities invest in SLABS. Now THAT would be quite sickening if they did.

 

[Char. Limit]

There's DEFINITELY a higher education bubble that's about to burst and Uncle Sam will be liable for it all. Read this excellent article:

http://nplusonemag.com/bad-education


I had no idea student loan debt was securitized and sold on Wall Street. I wonder if universities invest in SLABS. Now THAT would be quite sickening if they did.

Wow... this is scary. I'm starting to wonder if I should just get out of college now, while my debt is still manageable...

 

[loseyourname]

This really isn't much like the 90s when companies that were losing hundreds of millions per year saw their IPOs go up 1000% in the first day of trading and the market leaders like Dell were trading at 180 times earnings. Apple and Google both trade at around 16 and 20, which are reasonable if you expect them to simply outpace the market average by a modest amount for the next decade, which they will do. Twitter, LinkedIn, and Facebook are at least extremely profitable companies that have grown fast and have a legitimate business plan that actually produces revenue at a low cost. You can't compare them to a supermarket chain, which is extremely cost-intensive with the massive capital investments required to ship, store, and preserve goods sold for almost no margin in a very nearly perfectly competitive market. The relationship between gross revenue and market capitalization is obviously not going to be the same for industries so completely different from one another.

 

[loseyourname]

There's DEFINITELY a higher education bubble that's about to burst and Uncle Sam will be liable for it all. Read this excellent article:

http://nplusonemag.com/bad-education


I had no idea student loan debt was securitized and sold on Wall Street. I wonder if universities invest in SLABS. Now THAT would be quite sickening if they did.

Damn. That is an extremely disheartening and well-written and argued article.