Candy Crush’s Terrible Market Debut Shows We’re Not in a Tech Bubble

Moneybox
A blog about business and economics.
March 27 2014 4:39 PM

Candy Crush’s Terrible Market Debut Shows We’re Not in a Tech Bubble

3623954578_f28c1b2e21_o
It's time to calm down about the next tech bubble.

Photo by gadgetdude

So far, the market hasn’t taken kindly to the maker of Candy Crush Saga.

Alison Griswold Alison Griswold

Alison Griswold is a Slate staff writer covering business and economics.

The game that created an addiction for players around the world is having a tougher time selling itself to calculating investors. Shares of mobile gaming company King Digital Entertainment PLC lost 16 percent of their IPO price in their first day of trading on Wednesday and edged lower today as well.

Advertisement

Adding insult to injury, King’s showing was the worst by a newly listed U.S. company in more than four months, Bloomberg reported. Its dour performance dragged down peer gaming companies Zynga and Glu Mobile, and prompted analysts to conclude that the stock had been mispriced.

The terrible open is surely smarting for King, but it should reassure those who fear a tech bubble. It seems investors are not chasing just any new startup on the market.

Yes, talk of a new tech bubble has been all the rage. Its harbingers are more than happy to point to the signs: the booming valuations of startups, surging office rents in San Francisco, a string of tech IPO filings, and venture capitalists who poured billions of dollars into software and Internet companies in 2013—investment levels that rivaled those made in the dot-com bubble of the early 2000s.

To add fuel to the fire, Facebook’s recent $2 billion purchase of virtual reality company Oculus, combined with its earlier $19 billion cash-and-stock acquisition of WhatsApp, pushed the dollar volume of tech deals to its highest level since the dot-com bubble peaked in 2000. The WhatsApp deal alone weighed in as the fifth largest in tech history.

Has the tech sector crossed the line between a boom and irrational exuberance? Like any other major market prediction, that’s a million-dollar question, and the subject of much scrutiny by analysts. But many are optimistic that the modern tech landscape is fundamentally different than its dot-com bubble predecessor.

“1999, I think the Internet was born, it was a platform, but other than that, no one knew what was going to happen—the value proposition wasn’t as clearly defined,” says Mark McCaffrey, global software leader and technology partner at professional services firm PricewaterhouseCoopers. 

What was merely the Internet in the late 1990s and early 2000s has since exploded into cloud computing, mobile, and big data. Our lives are built around our devices and networks. “All those things—mobile apps, mobile devices, cloud, big data—as they’re now impacting our lives and creating value, I think that’s what everyone’s being driven toward,” McCaffrey says. “Most investments today are really happening after the technology has proven itself and a market has been validated for that technology.”

Now put that perspective into context with the economy. While interest rates remain low, tech companies are an attractive place for investors to park cash that they have sitting around. Perhaps because of that, the VC community’s investments in Internet and software companies got bigger in 2013, according to a report from PwC and the National Venture Capital Association, and as the size of the rounds grew, investors began jumping in earlier.

Could that cycle of bigger and earlier investments eventually lead to trouble? Of course. But as McCaffrey likes to remind people, everything in the market is cyclical, and corrections big and small will always happen. Nothing goes up forever.

“Right now I think there is some real value in the market, especially around technology,” he says. “The investors today look to see a valid financial model, and then a market, and then they come.”

Wednesday’s Candy Crash certainly suggests as much.

  Slate Plus
Working
Nov. 27 2014 12:31 PM Slate’s Working Podcast: Episode 11 Transcript Read what David Plotz asked a helicopter paramedic about his workday.