As the author notes back to multiple offers in many markets including palo alto and mountain view....funny how cramers rag the street was calling it a bubble here less than a month ago.
Old Jumbo JIMBO dont know real estate
Signs of exuberance are everywhere: Tesla roadsters, soaring real estate, overpriced vinegar - and eye-popping valuations for pre-IPO companies like Facebook and Zynga. So why are so many Silicon Valley denizens reluctant to use the B-word?
By David A. Kaplan, contributor
FORTUNE -- Michael Dreyfus, 49, is a leading real estate broker in the heart of Silicon Valley. During the winter he sensed the housing market was coming back, though he hadn't a clue what he'd be in for. In February prospective sellers came to him with a listing for a perfectly respectable property in Palo Alto: four bedrooms, three bathrooms, 7,500-square-foot lot, needs work. He recommended that the sellers ask $1.9 million. When the house went on the market in April, they had bumped the price to $2.3 million. Seven offers came in above that price; $2.7 million won the frantic bidding. Several buyers attempted to make offers even as the broker was supervising repairs to a kitchen flooded by a burst pipe. What's a little leak when the price tomorrow may hit $3 million? "We live in an alternative universe here," Dreyfus acknowledges.
Welcome to the Bizarro World of Silicon Valley Summer 2011, where financial fervor is fueling yet another real estate boom. Billions of dollars in fresh venture capital is being invested, and tech IPOs are hitting the stock market weekly. The rest of the country may be in the economic doldrums, but here the winds are fair and the sails of the newly rich captains are full. Entrepreneurs are pulling out fresh business plans; more angel investors are getting into the pre-IPO action; exuberance fills the Northern California air. Is the surge the beginning of a new, lasting wave of good times to wash over El Dorado, or is it the harbinger of the latest speculative cycle?
Consumer sites like LinkedIn (LNKD) and Pandora (P) have gone public recently, with multibillion-dollar valuations -- and without the profits to justify it (at least using traditional metrics). LinkedIn has been trading at 750 times its estimated 2012 earnings -- as the rest of the market trades at barely 12 times forward earnings.
Just last week, Zynga filed for a $1 billion IPO. The fever is contagious: Groupon, based in Chicago, is sure to have an IPO shortly, and Washington, D.C.--based LivingSocial, the No. 2 local-commerce website after Groupon, may file soon too. And everybody expects an IPO from Facebook by early 2012. Its valuation, based on trading in private secondary markets, has surpassed an astonishing $80 billion, which puts the seven-year-old company in the same financial league as established public operations like Amazon (AMZN) and Cisco (CSCO).
Microsoft's acquisition of Skype has similarly furrowed brows. Chinese Internet companies, listed on American stock exchanges, are another marker of enthusiasm possibly gone awry. For example, Youku.com (YOKU), hyped as the YouTube of China, went public in December at $12.80 and approached $70 in April. In June it had sunk to near $25. You could argue the stock had returned to normalcy -- or instead that a little bubble had popped, and when it did, it popped big. Color.com has become its own cautionary tale. It announced in the spring that it had raised $41 million for a "miraculous" free app for smartphones that would allow users to share snapshots. Yet when the app launched, it was a bust.
The swell in IPOs isn't limited to splashy social-networking companies. IronPlanet, based across the bay from Silicon Valley in Pleasanton, is as unsexy as it gets. It conducts online auctions worldwide for heavy equipment, like a Caterpillar (CAT) backhoe loader or a John Deere (DE) crawler tractor -- and plans to go public this summer. Overall, more than 50 tech IPOs are expected by year-end -- coincidentally, or ominously, the most since 2000. Proceeds from IPOs this quarter -- nearly $12 billion so far -- are already more than double last year's total. Venture investment for 2010 was $23 billion -- nowhere near the $99 billion of 2000 but far above the $10.5 billion of 1996.
From the tech boom's epicenter in and around Palo Alto to the neighborhoods up the peninsula in San Francisco, the newest paper Siliconillionaires are everywhere. "It's too hot," says one VC whose firm has invested in a dozen IPOs over the past year. He's telling me this on a recent Tuesday night during one of Silicon Valley's elite poker games -- in which he's proving he's quite adroit at placing bets.
"The valuations are very high and discount too much risk. Too much late-stage money is flowing in -- and much of it from other dotcoms, which have lots of their own investment money coming in, so it's circular." The exuberance reminds him of a time not so long ago -- barely a decade -- when the dotcoms and the stock market and the Valley came crashing down. On March 31, 2000, the Nasdaq (COMP) peaked at 5132. At 2800 or so, it's still barely half that now. Nonetheless, warns the VC, "the analogies to the last bubble are unavoidable." (For such analogies, see charts below.)