This has been what has been confusing me about the market for the past quite-a-while with regard to the tech stocks. Were some of them doing well? Sure. Were some of them basically money fountains that needed just a slight turn to prioritizing profits over growth to make lots of money? Sure.
But a lot of the tech giants were priced as if they had not already expanded into well over half the market, but as if they still had 99% of their market still in front of them and no competition in sight.
As of this time last year, it is not plausible that Facebook is extremely likely to continue growth like crazy and increase their revenues per customer by a factor of 10 or 50 or something. Sure, their whole VR play may pay off hugely, but I couldn't say it's extremely likely the way their stock said. Netflix was not going to grow their subscription base by 10x and/or charge their customers 10-50x more. Etc.
I mean, I guess it's within the range of possibilities for these companies, but these stocks were priced like it was all but guaranteed that these companies were going to see smooth sailing to levels of revenue I couldn't even remotely guess how they were ever going get to. How is Facebook, at this point, going to pivot into making $500/user/year from their current ~$20/user/year? And whatever your answer, what is the probability of that just smoothly working with no hiccups within the dollar-cost-value window it would have to take place in?
In the last couple of months, I've been getting my answer to this question, and my confusion has been resolving.
The devil is certainly in the details, and valuations are often overly optimistic...
But similarly, I believe there are a few really strong companies that are dramatically under-valued today, partly because they (purposefully and strategically) don't turn a profit yet, or because they trade at a very high multiple.
Facebook is not one of the companies I spend a lot of time researching (but don't interpret this as me having a negative view of the stock-- I just have "no view").
Taking the time to read filings, as well as any investor materials these companies put out (with a critical and open mind, of course) goes a really long way.
But a lot of the tech giants were priced as if they had not already expanded into well over half the market, but as if they still had 99% of their market still in front of them and no competition in sight.
As of this time last year, it is not plausible that Facebook is extremely likely to continue growth like crazy and increase their revenues per customer by a factor of 10 or 50 or something. Sure, their whole VR play may pay off hugely, but I couldn't say it's extremely likely the way their stock said. Netflix was not going to grow their subscription base by 10x and/or charge their customers 10-50x more. Etc.
I mean, I guess it's within the range of possibilities for these companies, but these stocks were priced like it was all but guaranteed that these companies were going to see smooth sailing to levels of revenue I couldn't even remotely guess how they were ever going get to. How is Facebook, at this point, going to pivot into making $500/user/year from their current ~$20/user/year? And whatever your answer, what is the probability of that just smoothly working with no hiccups within the dollar-cost-value window it would have to take place in?
In the last couple of months, I've been getting my answer to this question, and my confusion has been resolving.