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As Tech Stocks Rise, Silicon Valley Is Acting Like It's 1999

The State

July 13, 2003|David Streitfeld | Times Staff Writer

SAN FRANCISCO — "Please God, Just One More Bubble."

That's the message on a legendary Silicon Valley bumper sticker, and whaddaya know? It seems to be coming true.

Close your eyes and it feels a little like 1999, that giddy, amazing, lost moment when Silicon Valley was the most important place on Earth and just about everyone in it was happily adding a zero or two to his or her net worth.

The stock prices of unproven Internet companies that no one has ever heard of, such as PacificNet Inc. and EuroWeb International Corp., are once again doubling in a single day. The tech-heavy Nasdaq composite index is up 56% from a five-year low reached in October. Insiders are happily selling shares, cashing in options that recently were fit only for making paper airplanes. Call a chic Bay Area restaurant such as Delfina or Betelnut or Greens on a typically dead night like Monday and you will be told, simply and sweetly, no table, no way. The hottest car is a $50,000 Hummer.

The future, once again, appears unlimited in many eyes.

Prices of Internet stocks such as United Online Inc. and EBay Inc. may seem sky-high, U.S. Bancorp Piper Jaffray analyst Safa Rashtchy wrote last week in his newsletter, but it "is hard for us to identify a negative catalyst The run is likely to continue."

Statements like that were frequently made by analysts and dot-com executives toward the end of the boom, and in retrospect they provided an excellent signal to sell. But no one is acting alarmed by their sudden reappearance.

In fact, people have decided to forget they ever heard such claims before, said William Cockayne, an affiliate with the Institute for the Future, a Menlo Park, Calif., think tank.

"Part of the advantage of Silicon Valley is that it has no memory. That's how it can continue to innovate. But that's also its Achilles' heel -- it will continue over the next 10 years to do the same things wrong again," said Cockayne, who compiles an influential daily e-mail newsletter of tech stories from newspapers and magazines. "The valley finds something amazing and, instead of letting it slowly develop, accelerates it and draws in all the people who want to be part of the next new thing."

He practically guarantees it: "There will be another rise, then another bubble and then another crash."

Things already are going so well here that an Internet retailer has applied to sell shares to the public, something essentially unheard of since such infamous collapses as Pets.com and EToys Inc.

RedEnvelope Inc., a 100-employee San Francisco firm, sells upscale gifts through its Web site. If the planned offering goes through at even a modest price--and analysts think it will-- RedEnvelope will be a billion-dollar company. Not bad for an outfit that had a net loss of $7.7 million in its last fiscal year, has only $5 million cash on hand and competes with everything on- and off-line from Amazon.com Inc. to Macy's.

When companies aren't announcing improbable debuts, they're staging even more unlikely returns from the dead.

Ask Jeeves, an Emeryville Web search firm, is typical: From a peak of $190 a share in November 1999 it skidded to 92 cents as recently as October, at which point it was being written off as more Internet roadkill.

On Friday, Jeeves closed at $16.42. Like many of the Internet firms, it's still a long way from its high. But anyone who invested in the company during the last two years has made a killing.

Meanwhile, the auction house EBay, always the gold standard of Web investments, is within a few points of its all-time high.

"I'll be darned if I don't see some authentic exuberance coming back," said Jamis MacNiven, the proprietor of Buck's Restaurant in Woodside. Buck's proximity to the estates of the venture capitalists made it a key deal-making spot in the boom era, and it continues to function as a useful weathervane.

MacNiven also subscribes to the "no-memory" theory of the crash. "It's like childbirth. You have to forget how bad it was so you can do it again."

He ticked off the signs: "We have more reservations. I've once again started seeing people earnestly shaking papers at each other. We had our best month ever about two months ago. Even the number of parties I've been invited to has gone up."

Parties--now there's a retro concept. The market peaked in March 2000, but it took another year to make clear the downturn wasn't just selective but all-encompassing. When there was nothing to celebrate, the parties abruptly died out.

For the next two years, people mourned their losses and tried to hang on to their jobs. Venture capitalists who once hired publicists to get them in the newspaper began employing publicists to keep them out of it. New investments dwindled and old ones died.

"In the bubble, all the VCs felt very smart," said Larry Kubal, managing partner of Labrador Ventures. "Then for the last three years we all felt foolish. No one's IQ has changed. Egos have. The pendulum always swings too far in the venture business."

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