Amid a flurry of seemingly sky-high valuations, deals and IPOs, the mood in Silicon Valley is a “little crazy,” Kenneth Goldman, chief financial officer of Yahoo, told CNBC — but he argued the excitement was justified.
“It is a little crazy,” he said, highlighting how high some of the recent company valuations have been. “They talk about unicorns now – companies valued at over a billion dollars.”
Success stories include Uber, which was reportedly valued at $50 billion following a recent funding round — a valuation that puts it just ahead of Chinese smartphone giant Xiaomi’s $45 billion.
But Goldman added: “My own sense is that the public sense is reasonably thoughtful.”
He highlighted that price-to-earnings ratios (PEs) on the NASDAQ were currently around 18 – significantly lower than before the dotcom bubble, when PEs were around 100.
Adding a word of caution, however, Goldman said there was an air of confidence that “nothing could go wrong” with regards to some valuations, when “things do go wrong from time to time.”
The number of high-profile acquisitions in the tech space showed that companies were confident about themselves, the CFO said.
Recent acquisitions include Microsoft’s purchase of to-do app Wunderlist and Apple’s acquisition of GPS start-up Coherent Navigation, first reported by The New York Times. Last year, headline-making deals included Facebook’s purchase of WhatsApp for $16 billion and Oculus Rift for $2 billion, and, in 2013, Tumblr was sold to Yahoo for $1.1 billion.
According to a report by PricewaterhouseCoopers published in May, there were 73 global M&A tech deals in the first quarter of 2015, with a total value of $22.3 billion. Almost 60 of those deals — with a total value of $18.7 billion – were in the U.S.
Goldman added that he had high hopes for innovation within the video and mobile areas of the tech sector in particular.
“Video is exploding, mobile is exploding and in mobile, people want to see video. We’ll see a lot more of this going forward,” he said.
Rate rise risks?
But as the prospect of an interest rise in the U.S. looms, there have been fears that some tech companies – which have been fuelling growth through with cheap credit — could be hit. Goldman, however, wasn’t worried, and said it didn’t necessarily mean fewer deals in the tech space.
“People have been talking about the Fed raising rates for three years and it is going to happen – my own opinion is for it to happen later this year,” he said. “But I think as long as it’s gradual, as long as you don’t see inflation all of a sudden go way, way up very quickly then I think it’s healthy.”
Image credit: CC by Patrick Nouhailler