Square is currently trading at $9.16 per share, which is 16 cents (2 percent) above the deeply discounted price at which it went public and $3.91 (30 percent) below the $13.07 per share price at which it closed its first day of trading with underwriter support in place for its “soaring” debut.
At the same time, Twitter, which has directly accounted for 5 percent of the job growth in San Francisco over the past two years, is currently trading at $16.68 per share, which is $9.32 (36 percent) below the $26 price at which it went public in 2013.
Non-finance people should not talk about the stock market. Every single world public exchange market has been down since the beginning of the year. Maybe read the WSJ before you post stuff like this next time?
Good point.
Maybe they won’t make nearly as much money off their options as they expected, but at least all their other investments are down as well.
Even though this likely has an influence on the real estate market? And it’s just a statement of facts?
Thanks for the suggestion, but upon a quick review of the WSJ, the prices of Square and Twitter remain the same (as does the impact on local investors and employees). And speaking of the markets being down, don’t forget the trend with respect to private fundings, which pay rents and salaries, as well.
If you had left it at Twitter alone, sure, you may have had an interesting point to make. They missed their 2015 estimates big time and their stock is paying a price for it. Bringing Square into the story is jumping the gun just a bit, and is what highlighted your lack of expertise on the subject (they haven’t even had their first earning release!). Stick to real estate, SocketSite.
Reporting price changes is hardly editorializing. The market price is the market price. Infer what you will.
The first rule of tech bubble is: You do not talk about tech bubble!
The second rule is….
CAC, FTSE and DAX all up today. NASDAQ opens up, then craters to negative. You don’t have to believe the correction is underway, particularly in the NASDAQ. I just hope there are more like you on the other side of my short trade.
Yeah, just look at those P/E ratios. Crazy times we live in….
You’re going to want to double check the data Larry and Sergei are serving in that link.
Twitter is not just down from it’s IPO at $26, it’s actually down 75% from the all time high it made around $73 I believe. Meanwhile, the broader NASDAQ index is down just around 12% from its cycle high.
These tech startup valuations are not called “unicorns” in vain, most of them are in fact donkeys with horns taped to their heads.
Twitter has 300 million captive users and still can’t come up with a business plan to monetize. Where does that put the smaller startups? Their parents’ basement!
While you are reading WSJ, any insight on how the Texas real estate is doing? Given oil price has slumped?
Texas had a big increase in RE prices since the 2007 downturn. A lot of that was because of job growth in non-oil based fields. Texas has diversified a lot since the big oil downturn hurt them years ago. More Fortune 500 companies headquartered there than any other state.
There will be an impact but not near what it would have been at one time.
Saying “[n]on-finance people should not talk about the stock market” is like saying “non-criminals shouldn’t talk about crime.” Eh, finance, crime – but I repeat myself.
What people don’t realize is that Square is now PUBLIC. So the alpha here is that there is now LIQUIDITY for thousands of employees to take advantage of to then buy a home.
Square employees weren’t buying homes when private. They key is new liquidity. Only a small percentage of the housing stock trades. You just need a little bit of people with a desire to buy through liquidity to move prices up.
“…there is now LIQUIDITY for thousands of employees…”
That would be a rather impressive realization, especially considering Square only had around 1,200 employees at the time it went public. And you might want to brush up on your familiarity with the secondary markets which were providing pre-IPO liquidity for employees, plenty of which already own homes.
In addition, of the 51 million options granted to employees since mid-2014, at which point the employee count was closer to 600, 80 percent have strike prices over $9 per share with a weighted average strike price of $11.40. In other words, a sizable number of employees could actually be underwater, yet on the hook for a hefty tax bill, if they exercised early in an attempt to avoid short-term capital gains.
Square employees are subject to lock-ups for several more months. That said, I’d be willing to bet that Facebook being a $260+ billion dollar company generates a lot more single digit millionaires to buy SF real estate than Square will, regardless of whether it’s a $3B or $6B company.
Plus Apple. And Google.
What you guys don’t see is that much of the revenue of the larger companies is dependent on the smaller companies that in fact have had little or no revenue, and which been supported by a series of VC and hedgie financing that is currently drying up. As these companies turn to dust, the big companies are going to see a hit to their revenues. No, they won’t disappear, but they will have to cut costs.
Now, as a wild-arse guess, what do you think these companies greatest costs might be?
Reaching there.
A lot of Ad spend in dot com 1.0 was done by wanna-be startups and that revenue all went away when the companies collapsed. Google style search advertising at least has a much broader base now and more people believe in its utility. FB is in a much more precarious position. Much higher PE and much more debatable value proposition with their style of ads. (On a side note, they just gave up trying to directly monetize WhatsApp. Yet again showing how it isn’t all that easy to monetize users of a free or under-priced service.)
China’s slowdown is the dark cloud over AAPL, not the collapse of wannabe unicorns. And that’s more of a reduced growth opportunity vs an existential threat. And they really have an excellent record of organic growth through profitable new product innovation. Wouldn’t bet against them. World of difference really in what they’ve been able to accomplish vs some companies that have stumbled along for near a decade losing money with no real idea how to right the ship.
Course, you could point out that the Apple/Google center of gravity is far south of SF.
How much of Google’s revenue is from smaller companies supported by VCs? I’d suspect it’s less than 5%. Google is an ad company that sells to just about every company in the world over a certain size. Now, ad companies always struggle during a downturn, but the idea that they’re overexposed to hot dog delivery apps is not supported by any data that I’ve seen.
the tide is on the way out.
That’s hardly a prediction at this point. You’re just stating what has been painfully obvious for nearly a year.
It is the market. All these comments will each be true at some point in the next 12 months. The profit is in picking the correct sequential order.
The point is the stock market is cooling. And SF real estate tends to trend in line. I’d argue its much broader than tech but tech is certainly over weighted as an asset class in SF/Bay Area. Not sure how many more days of red we will see like today (1/20/16) but at least in the short term I think you can probably assume you’re not going into a hot bidding war for real estate in most cases.
It still doesn’t feel like 2008 to me despite a portfolio that looks a lot more like it did in early 2014 than it did late 2015. Seems the Valley births one new mega company every few years. Uber, Facebook, Salesforce, Google, Apple and a large swath of super large companies that can sustain. Netflix, LinkedIn, etc… Verdict still out on Twitter and Square is really the only way to look at it. But the market has clearly lost faith and patience.
It’s pretty hard to understand how Twitter has not been able to turn the corner. Massive mind-share and impressions. They blew it by not buying Instagram and blew it even worse by failing to create even a moderately close competitor. And that just the start of where things started to go wrong.
Back to real estate and tech, there is still a massive demand for tech talent and ultimately it comes down to the supply of options and cash. There is still a premium on demand for skilled and experienced developers. The rumor was that all Twitter employees let go recently were employed within a month or so. I think that would still happen today.
“…assume you’re not going into a hot bidding war for real estate in most cases.”
I get the feeling that pre-bidding war real estate prices in SF are still challenging for most.
But how much of that demand is real. i.e. for folks who can produce value in excess of their compensation. And how much is just fodder for the unicorn wanna-be club?
During dot com 1.0, everyone who could sling an HTML blink tag was hot tech talent. Most of those folks cleared out after that crash.
It’s not just Twitter or Square. When the Baltic Dry Index keeps hitting new lows, the lowest levels since 1985, it means that the global economy is seriously unhealthy…and it’s not going to get better anytime soon. We’re just at the beginning of a very ugly cycle, and frankly there is no light on the horizon for the foreseeable future.
What does international trade have to do with SF real estate? You act as if global economies are somehow interrelated. Maybe you didn’t get the memo articulating the reasons for continued SF real estate strength. I hereby reprint the memo:
Everyone wants to live in SF;
Google! Facebook!;
They’re not making any more land;
Rent control!;
Real estate never goes down;
Peskin!
What is that called again when you submit exaggerated or fabricated arguments in order for you yourself to argue against? The internet has a name for it. I forget what it is. It’s not a thing in real life, but it’s definitely called something.
I’m sorry if satire makes you uncomfortable.
Oh, it doesn’t. Done well it’s a rather elevated means of expression.
well, I didn’t claim it was good satire…
It was Adam Sandler-type satire, at best. Silly voice: “Oooh Mr (some invented) So and so! Well, the opposite!”
Not very good.
Unfortunately, even if the broad economy and world markets all go to the crappers, human need for housing still exists to an extent that supports “the floor” of real estate market. That floor in SF is still quite high, even if there is a temporary 30% correction in SF (for the end-users at least).
You act as if housing is some sort of human “right,” instead of an optional commodity.
Except there’s no human need for housing *in SF*
And during good times, tech attracts talent from all around the globe. The flip side of folks coming here for the jobs is that all these folks have friends, family and other roots elsewhere if the pot of gold at the end of the rainbow loses it’s shine.
And SF RE is a thinly traded market. We’ve clearly seen that it doesn’t take many wealthy buyers to drive up prices to a significant extent. And a volatile thinly traded market can cut both ways…
Har. top comment to read WSJ. As if they ever predicted a bust. What cognitive dissonance. And free market arrogance. Your central banks may not be able to bail your assets out this time. (pun intended)
As one commentator cited the Baltic Dry Index, there have also been ten other glaring examples of the past six months, that not only are we already in a global recession, but since ‘nothing was fixed’ after 2009, we are headed to a global depression. QE 4? maybe. But it won’t work now.
Commodity prices, outside even oil, have been dropping for a year. Container freight dropping for six months. Corporate profits dropping. While they still do buy backs just to boost stock ‘value’. 60% of americans don’t have more than $100 to their name. USA GDP relies on 70% consumer demand. Gone. Finance sector and lost real jobs sucked all our money away. So glad you all made money on your increased rents. Lets see what happens in a depression.
China just pumped another trillion…and two days later…doesn’t matter. Government subsidized asset bubbles ain’t even working anymore. Thanks for the experiment. Thanks to the speculators that cheered it on. Now we have to deal with a disaster. And austerity.
Good points. This was on the horizon last year. Fettke laid it out several times and she is not the only one who did. China’s tech market was 220 times earnings – that could not be sustained. The Australian mining book towns started to go bust last year too. Australia and Brazil teetering on recession because of the commodity collapse. It was all there.
I am amazed the Saturday morning financial radio guys did not bring these things up. The ones I listen to anyway. But maybe I should not be surprised.
Not saying this will be crash, but a major correction. And it will impact Bay Area RE to a point. I’ve been saying a modest correction is due. 10%?
Tommy, aw, you’re being too hard on Murdock’s rag. From today’s WSJ:
“The selloff in oil prices accelerated Wednesday, intensifying a slide in global financial markets as investors worried that oil’s relentless downdraft signaled global economic gloom.”
Just seeing the words, “global economic doom,” in the unofficial mouthpiece of capitalism ought to give anyone with a pulse an uneasy feeling.
is it gloom or doom? you cited both
Yes. So many people have been predicting impending doom…for years. People have been talking about how it’s about to get really bad since like 2010. I’m sure it’s right…around…the…corner
But now the market is starting to agree with them. Worst start to a year ever.
I’m emotionally sympathetic to your argument, but where are these stats coming from?
“60% of americans don’t have more than $100 to their name.”
If that’s true, must it not be true that the median net worth for an american is <$100? And yet, if I Google "median american net worth" I get figures in the 10s of thousands (and much higher for some age groups, which is totally expected), at least as of 2014. It's hard to get an exact fix here. Lots of people spout numbers without citing references on here, but when they're demonstrably wrong it just undermines the quality of discussion.
maybe they’re including people aged day 1 to 18 yrs
There’s net worth and there’s liquid assets which excludes home equity, pension and retirement funds. Still, $100 seems low.
If this is a prolonged down cycle one big impact would be RE projects not yet approved or not yet having broken ground.
Parcel F – if the City barely got what it wanted this go round and then the developer backed out the situation trying to sell the entitled land to another developer will be harder now.
Same for Van Ness/Market. The agency accepted a price lower than the Supes agreed to. The Supes rejected and now? Will the whole Van ness/Market hi-rise plans stall out for a long while now?
Has the Chinese company broken ground yet on the Mission/Beale towers? Could that project be delayed now?
What Mission/Beale towers? Lumina (Folsom/Beale) was developed with the backing of a Chinese company, but that is nearly complete.
With a tanking Chinese stock market I’m wondering more about plans for Brooklyn Basin in Oakland, which is backed by Chinese money but is only in the site infrastructure phase…
Sorry. I think it may be Mission and Fremont.
[Editor’s Note: Plans For San Francisco’s Second Tallest Tower (at 50 First Street) Are Taking Shape.]
Its hard to say at this point.
This is part of a cycle. The downturn, however long or short, will inevitably be followed by an upturn.
In the short or maybe even mid-term some of these Chinese investment development deals are likely to be pulled back or the entitlement put up for sale.
At best a delay of a number of years.
Pshaw. Oakland, the Center of the Universe, will not be affected by this little Great Depression at all!
my prediction is that the city will ultimately get less than the amount they just rejected
Look on the bright side…better chance now that the fed will hold off on raising interest rates