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Bubble, what bubble?

Everything was copacetic with the monied tech crowd at The Wall Street Journal's D: All Things Digital Conference at a resort in sunny Rancho Palos Verdes, Calif., last week.

Few presenters even mentioned that tech, especially social-media companies, might be in a valuation bubble despite the $7.45 billion market capitalization for recently public LinkedIn (LNKD) and despite daily Web-deal sensation Groupon's hopes to raise about $750 million in an initial public offering. Coming closest: Google's chairman, Eric Schmidt, who gingerly admitted as much to reporters offstage, but didn't display much concern. Schmidt semi-jested that he'd read it in the newspapers, so it must be true. But he elaborated that if this were a bubble, it would probably hang around for a while.

For his part, venture capitalist and Netscape co-founder Marc Andreessen, who seems to be having the time of his life, applied contrarian psychology to the bubble question. "A bunch of people think there's a bubble, so, therefore, we think it is not," Andreessen posited. "If everybody's euphoric, then I'm concerned. If we're back here in three years and nothing's changed and nobody's worried, I'll be horrified. I'll wet my pants on stage," Andreessen said.

 

Groupon Investor Marc Andreessen: 'No Tech Bubble'

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In an interview with WSJ's Kevin Delaney, Groupon and LinkedIn investor Marc Andreessen insists that the recent popularity of tech companies does not constitute a bubble. He also stressed that both Apple and Google are undervalued and that "the market doesn't like tech."

Indeed, Andreessen went on a tirade about how low the price/earnings ratios for the tech behemoths are. Microsoft (MSFT) has a forward-looking P/E of 8.63 times. Cisco Systems' (CSCO) P/E is 9.25. "P/Es in single-digits are what steel mills trade at before they go out of business," Andreessen quipped. "What these things tell me is the public market hates tech. It's tremendously scarred by 10 years ago."

Then how does one explain the LinkedIn valuation? "As an angel investor [in LinkedIn], I'm biased. It has a thin float, the market is starved for growth, [and] you can't even borrow shares to sell LinkedIn short yet," Andreessen mused. But "it is a powerful and important company doing an important thing. The problem is that there is no other [tech stock] like it . For the first time in history, we have an equity bubble affecting one stock," he said.

There is that B-word again. One inflated social-media company does not a bubble make that's what he appeared to be saying. As for the frothy secondary markets, which have allowed still-private companies such as Facebook to let employees sell shares without going public, Andreessen said the jury is still out. He added that LinkedIn's IPO is valued at about four times the company's private-market valuation, "but it is hard to draw any conclusions yet."

Andreessen and partner Ben Horowitz have raised about $1.3 billion in their venture fund for their firm, Andreessen Horowitz. Sometimes, Andreessen acts as an angel investor on his own, sometimes he buys stakes through the fund, and sometimes he does both. So he has pieces of some of the hottest social-media plays in the IPO queue, including Groupon, Zynga and Facebook.

Groupon's chief executive, Andrew Mason, was very disciplined in not answering questions about IPO plans at the conference because, as it turned out, less than 24 hours later, his company filed to go public. One of the catalysts for the hasty filing may have been Google's (GOOG) launch at the D of a daily-deal service designed for its Android mobile-operating system. "As much as I hate it and want to kill everybody, I think competition is great for consumers," said the 30-year-old founder of Chicago-based Groupon.

GOOGLE'S SCHMIDT, who kicked off this year's proceedings, made a macro observation that resonated throughout the conference. Schmidt opined that there are four technology companies that have "exploding-platform strategies": Apple (AAPL), Google, Amazon.com (AMZN) and Facebook. He dubbed them the "Gang of Four," implying that they're the dominant consumer-technology companies. Conspicuously absent from his gang were Microsoft and closely held Twitter. Schmidt, who was Google's CEO for 10 years, was magnanimous in his praise of Facebook and its founder, Mark Zuckerberg, for having the vision to create the world's dominant social-networking site. Schmidt blamed himself for not directing Google to develop an "identity" function sooner: "The CEO should take responsibility. I screwed up."

One CEO who doesn't seem to make many mistakes is Netflix (NFLX) CEO Reed Hastings, who warned shareholders that if the company's international expansion succeeds, earnings could suffer. The Internet movie-distribution outfit plans to expand to Canada this year and a second, undisclosed foreign market soon after. "We tell investors [that] the better it goes, the more money we are going to lose, because we are going to [continue] to invest," Hastings said. However, he also explained why he wrote an open letter to an institutional investor whom he considers a friend, who was selling Netflix shares short. "I'm not trying to have a war with the shorts," Hastings said. To the contrary, "if you have a friend on the short side, and you think he's wrong, you want to tell him," he said. Netflix shares hit a 52-week high of 276.24 on Friday. Says Hastings: "I didn't want him to lose money."