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The problem with using market cap for tech is that Wall Street and the financial industry in general factors in too much "hype" and imagined future earnings int
by ceilingcorner 6y ago
The problem with using market cap for tech is that Wall Street and the financial industry in general factors in too much "hype" and imagined future earnings into their valuations. This should be obvious to anyone that sees headlines of X Company with unreliable revenue model now valued at $50 Billion.
If instead you look at industries which don't have as much of this future hype, they are much more competitive. Fashion, for instance. LVMH has a market cap of $283 billion and Bernard Arnault briefly surpassed Bezos as the richest man in the world in 2019.
- replyifuagree 6y agoI agree. For example, look at companies by revenue, walmart is #1 and the no software engineer at the helm ever right? Of course now take a look at this macro trends chart comparing walmart to amazon https://www.macrotrends.net/stocks/stock-comparison?s=revenue&axis=single&comp=WMT:AMZN https://www.macrotrends.net/stocks/stock-comparison?s=revenu... Now tell me your best guess on when when Amazon will pass Walmart to take Fortune 1.
- ceilingcorner 6y agoI don't doubt that Amazon will overtake Walmart, but I have an issue with calling someone the best CEO today based on a metric that is dependent on future projections.
- replyifuagree 6y agoMy conservative guess is three years. How about revenue growth rate? That's now right? Edit: one thing about revenue and profit is that there are businesses that operate off of graft that kind of throw a monkey wrench into those measures
- ceilingcorner 6y agoI don't think you have understood my initial point. Please, read my first comment again. I'm not saying that Amazon won't overtake Walmart, but that tech companies benefit from future projections factored into their valuations, while other non-hyped businesses don't. If the argument is that "software engineers make the best CEOs", it seems more likely that companies in the software industry simply get higher valuations for the aforementioned reasons.
- elcomet 6y agoAll companies shoud benefit from future projections. It's just that other companies are growing much slower.
- replyifuagree 6y agoSo how about using revenue growth?
- ceilingcorner 6y agoStill not particularly useful if we are comparing new companies to old ones. I'm sure the brand new oil companies of 1875 had incredible revenue growth in the ±20 years after their founding, too. Does that mean that oil men make the best CEOs?
- replyifuagree 6y agoI mean, those oil men clearly had something going on that was relevant to what was tractionable at the time, and revenue growth can be an indicator of finding that traction in the market. As mentioned below, it can also be a sign of graft. Of course through the lens of history, considering climate change, the best CEO was the one who didn't unleash a huge pile of CO2!