Are We Seeing Another Dotcom Crash?

Even three of the four vaunted FANG stocks ― Amazon (AMZN), Netflix (NFLX) and Google (GOOG) ― are underwater. The fourth, Facebook (FB), is basically at break-even. And don’t go looking to Apple (AAPL) for salvation. It’s also in the red for 2016.

At the same time, we are beginning to see erosion in the valuations of privately held technology stocks. Not just in the carrying prices from their existing investors, but also in the form of so-called down rounds and lower valuations at even the early stages of venture capital. If 2015 was the year of unicorns, 2016 might be the year of magical glue.

Not surprisingly, all of this has resulted in comparisons to 2001 and 2002, when the dotcom dream became a nightmare.

While there certainly are some similarities ― namely in investors first valuing growth over unit economics, and then changing their collective mind ― it’s a pretty poor analogy. In fact, if you need to find a decent parallel, it would be better to look at the more recent financial crisis.

Between at the beginning of 2000 until the end of 2002, the Nasdaq composite fell by around 53%. During that same period, the S&P 500 was off 22% and the Dow Jones Industrial Average was down just under 13%. In other words, tech was hit much harder than were the broader markets.

In 2016, however, the losses are distributed much more evenly. The S&P 500 and DJIA each are down more than 8%. That’s smaller than the NASDAQ’s 12.9% drop, but not nearly by the differential that we saw during the dotcom crash. Kind of like what we saw during the financial crisis ― albeit less severe ― when the NASDAQ was down 35% between 2007 and 2009, compared to a 30% drop for the DJIA and a 36% fall for the S&P 500.

Moreover, recent markdowns for privately held companies are not exclusive to tech. Just check out how deep Fidelity has slashed the value of its holdings in coffee chain Blue Bottle. Or the pressure put by investors on non-tech companies like Nasty Gal and BirchBox, each of which just announced layoffs.

Today’s stock sign is a downward arrow, without too much regard for industry sector. Almost everyone got ahead of their skis, and macro factors are pulling them back. Last time it was a mortgage debacle that sparked a massive recession. This time it’s a credit crunch, slowing Chinese economy, and low energy prices (that last one is crazy counterintuitive, but it’s a real thing). Plus, of course, a six-year bull market for stocks.

In 2001, the technology companies had gotten far ahead of a market in which only 4.5% of all Americans were broadband subscribers. Many of them weren’t “real” businesses because they didn’t have much total addressable market. In 2016, the problem isn’t tech. Instead, tech is just a party to other problems.