Daivd Einhorn: Maybe It's Time To Asking Questions Like, "Why The F*ck Did A Startup Texting Service Sell For $19 Billion?"

Or something along those lines.

...there is a clear consensus that we are witnessing our second tech bubble in 15 years. What is uncertain is how much further the bubble can expand, and what might pop it. In our view the current bubble is an echo of the previous tech bubble, but with fewer large capitalization stocks and much less public enthusiasm. Some indications that we are pretty far along include:

• The rejection of conventional valuation methods;
• Short-sellers forced to cover due to intolerable mark-to-market losses; and
• Huge first day IPO pops for companies that have done little more than use the right
  buzzwords and attract the right venture capital.

And once again, certain “cool kid” companies and the cheerleading analysts are pretending that compensation paid in equity isn’t an expense because it is “non-cash.” Would these companies be able to retain their highly talented workforces if they stopped doling out large amounts of equity? If you are trying to determine the creditworthiness of these ventures, it might make sense to back out non-cash expenses. But if you are an equity holder trying to value the businesses as a multiple of profits, how can you ignore the real cost of future dilution that comes from paying the employees in stock? Given the enormous stock price volatility, we decided to short a basket of bubble stocks.

Greenlight Letter To Investors [PDF]

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