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It really does remind me of the .com bubble in many ways. The quote from Scott McNeely[0] has sprung to mind a lot lately. - MSFT 10x sales - V 17x sales - M
by christophilus 6y ago
It really does remind me of the .com bubble in many ways. The quote from Scott McNeely[0] has sprung to mind a lot lately.
- MSFT 10x sales
- V 17x sales
- MA 16x sales
- NFLX 9x sales
- BYND 23x sales
- ZM 68x sales
Some of those are obviously great companies with fat margins and well worth above average multiples. But ZM at 68x sales?
The market feels a bit out of touch.
[0] "At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"
- asdf21 6y agoEveryone is throwing money into tech stocks right now because they "seem safe" Try running the numbers on TSLA... they should be at like $300 on their best day.
- sacred_numbers 6y agoI think the underlying assumption is that the company will grow very quickly, so that when it comes time to pay you back they are paying you back with a small fraction of their revenue. Look at Netflix, for example: ten years ago they had 1.67 billion in annual revenue. Last year they had 1.87 billion in net income, and they are still growing. There are certainly some ridiculous valuations, but that quote is ignoring both the fact that businesses grow and that not everybody needs a 10 year payback. More generally, the reason there are high valuations for companies that are growing users by selling a $20 bill for $18 is that they can drive out all of their competitors who can't afford to burn money. Once those competitors are gone, the survivor can raise prices, lobby governments for regulations that make breaking into the market very difficult, and generally employ anti-competitive practices to take advantage of their situation. If they're able to do this without being smacked down by anti-trust regulators they will be a money printing machine. These high valuations mean that the market thinks that governments will remain toothless and easily controlled. It's a depressing future to think about, but there's a pretty high probability that this is how it will be.
- christophilus 6y agoYou're right. I just haven't been able to bring myself to invest like this. Also, I hate the idea of supporting companies who behave like leeches, but it's pretty hard to avoid that.
- dathinab 6y ago> More generally, the reason there are high valuations for companies that are growing users by selling a $20 bill for $18 is that they can drive out all of their competitors who can't afford to burn money. Which is a prime example why the whole business model is harmful for a capitalistic marked as it undermines any idea of "fair" competition and marked self balancing. (At least in a context where the money burned comes from an external source like e.g. VC, through close to quasi-monopoles spreading to new markets also fall into this category IMHO).
- chaoticmass 6y agoWhat is the context for the Scott McNeely quote?
- christophilus 6y agoSun Microsystems’ stock price being unrealistic. He was CEO of Sun. I think it was during the .com mania, but I may be wrong about that.