It’s always dangerous to make predictions with something as volatile as tech companies and the stock market, but it’s that time of year, so here we go:
1. The raging bull market slows down.
The S&P 500 was up 11 percent in 2014 as of mid-December, and last year was even more unbelievable, with a 32 percent gain. I remain cautiously optimistic about the market in 2015, but I do expect the bulls to slow down — just not enough for the bears to catch them.
For 2015, I see a 5 to 7 percent gain in a more volatile environment that causes investors to move more of their money into stocks with strong fundamentals and rational valuations.
2. Investors continue backing away from “momentum stocks.”
Because the environment will be more volatile in 2015, investors will continue backing away from “momentum stocks,” most of which are social media companies, due to unattainable valuations and fears of inevitable slowing growth. Last year’s most anticipated IPO, Twitter, is down more than 40 percent, with other once high-flying stocks such as Yelp, Zynga, Angie’s List, and Groupon also suffering losses of between 20 and 60 percent. Amazon — the most notable survivor of the first tech boom in the late 1990s — trades at 341 times expected earnings (Amazon doesn’t technically have a P/E ratio because they don’t expect any earnings for the 2014 fiscal year). Amazon’s market cap is a lofty $142 billion, yet after 15 years as a public company, it continues to lose money. Until a few quarters ago, analysts and investors were still drinking the Kool-Aid of Svengali-like leader Jeff Bezos, but that’s starting to change, as followers grow weary of waiting for profits.
Newcomer GoPro took the 2014 IPO market by storm with its wearable camera, but its P/E ratio of 66 values the company at more than 50 times next fiscal year’s expected earnings. GoPro has a market cap of $8 billion with total revenues for 2015 anticipated to be just $1.6 billion. While GoPro is revered by sports enthusiasts around the world for its very cool product, some analysts worry it could also be just another fad (remember the Flip camera?). GoPro also faces competition from rival iON Cameras and Polaroid’s new Cube camera, and there’s always the chance of a cash-flush giant such as Apple, Samsung, or Google to enter the fray. And then there’s the lock-up expiration, where insiders can start selling their shares.
As it was during the dotcom era, crazy high valuations accompanied by aggressive insider selling is a common scenario in the latest tech boom — which is great for insiders, but potentially disastrous for retail investors. In 2015, smart investors will stay away.
3. Karma will be a bitch for Uber.
Perhaps the most anticipated IPO of 2015 is also one of the most controversial — the ridesharing app everyone loves to hate, Uber. After its most recent round of financing, the five-year-old company’s $41 billion valuation makes it worth more than Tesla, NetFlix, Charles Schwab, American Airlines, Adobe Systems, Kraft Foods, General Mills, Yum! Brands (parent company of Chipotle Mexican Grill, KFC, Taco Bell, and others), and Marriott International, and, most astonishingly, more than rental car behemoths Hertz and Avis combined.
But Uber has issues — a lot of them. For starters, the company is morally challenged. Just in the last few months alone, they’ve tried to sabotage their biggest rival, Lyft, by ordering more than 5,000 rides and then cancelling them; at a dinner party he thought was off the record, Senior Vice President of Business Emil Michael suggested that Uber spend a million bucks to hire “four top opposition researchers and four journalists” to dig into the personal lives of media members and their families (Uber has a notoriously combative relationship with the press); and prosecutors in Los Angeles and San Francisco have sued the company, alleging that Uber lied to consumers about the strength of its background check system and charged UberX users a $1 “Safe Rides Fee” that falsely advertised those checks. There have been accounts of drivers, some with criminal records, raping and kidnapping female passengers and assaulting male passengers (in one case here in San Francisco, a man was clobbered over the head with a hammer).
The lawsuit also accuses Uber of illegally operating at airports, charging riders fraudulent airport fees, and calculating fares without consulting with state agencies. Consumers are also starting to question the company over its “surge pricing,” a practice of dramatically increasing fares during times of high demand. This past Halloween, a Baltimore woman named Gabrielle Wathen caught a 20-minute ride home from her birthday celebration that, after 9-times surge pricing, cost her $363. After surge pricing during Hurricane Sandy, New York’s attorney general suggested Uber was engaged in price gouging. As a result, Uber promised not to raise prices during “disasters and emergencies,” and was expected to implement the policy elsewhere — but during San Francisco’s biggest storm in ages, Uber jacked its rates by 3.8 times, and in Sydney, Australia, they quadrupled prices for passengers trying to escape a hostage crisis. Surge pricing earned Uber an “F” from the Better Business Bureau (as well as from some very angry customers).
In 2015, I expect states to start banning surge pricing, pushing legislation that levels the playing field for taxi companies, and filing more lawsuits over Uber’s sketchy background checking. (And if you think Uber is ruthless now, wait until they’re a public entity beholden to shareholders.)
4. Tech firms will face more sexual harassment and discrimination lawsuits.
According to data from the Computing Research Association, of the technology workers at seven Silicon Valley companies that have released staffing data, just 2 percent are African American and 3 percent are Hispanic. But last year, 4.5 percent of all new recipients of bachelor’s degrees in computer science or computer engineering from prestigious research universities were African American, and 6.5 percent were Hispanic.
The majority of workers at tech companies are white (55 percent) and male (70 percent). Former Zillow employee Rachel Kremer is suing that company for sexual harassment, comparing the internal culture to “an adult frat house.” According to the federal court filing, Kremer says her former bosses ranked women by breast size, repeatedly made overt sexual comments, asked her for sex, and sent explicit texts — at least one of which included a picture of a penis. When she spoke out against Zillow’s boys-behaving-badly culture, Kremer says she was fired.
The real estate search site was also recently hit with an age discrimination lawsuit alleging that sales employees at its Irvine, Calif., office openly engaged in age discrimination of coworkers. According to the 41-year-old complainant, her manager would ask if she was “too old to close” and frequently asked her to “try and keep up with us.”
Zillow isn’t alone: Next month a gender discrimination and retaliation lawsuit by former partner Ellen Pao against Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers heads to court, and earlier this year, dating app Tinder settled a lawsuit from Whitney Wolfe, its former vice president of marketing, after she alleged she was routinely subjected to a pattern of sexist behavior.
Because I don’t expect the demographics to change at tech companies any time soon, I predict a flood of similar lawsuits to hit in 2015.
If San Francisco’s history has taught us anything, it is that what goes up must come down — and when the good times are too good for too long, chances are, it’s too good to be true. From the Gold Rush to the Dotcom Bomb, this always has been and always will be a boom-and-bust town. So keep that in mind next time you consider putting your money into the latest trendy tech stock in hopes of making a fortune. You’re odds are better at a blackjack table in Vegas.