1999 Called, They Want Their Stock Bubble Back...

Tyler Durden's picture

Authored by Simon Black via SovereignMan.com,

File this one away under “Completely Obvious…”

Earlier this week the parent company of Snapchat reported a quarterly loss of more than TWO BILLION dollars.

Snapchat, of course, is the photo-focused social networking app that’s adored by tweens and adults who still live with their parents.

(Talk about a lucractive demographic.)

The company IPO’d just a few months ago with a market capitalization of $30+ billion despite slowing growth and a history of never turning a profit EVER.

According to the company’s quarterly report its finances have gone from bad to worse.

Operating cashflow dropped from negative $92.5 million to negative $155 million; and its total loss for the quarter including stock-based compensation was $2.2 billion.

It’s incredible that this is the same company that was a Wall Street favorite just eight weeks ago.

In fact on its first trading day back in March, Snap’s shares surged 44% as investors clamored to own a piece of this loss-making company whose shares confer absolutely zero voting rights.

After this week’s horrific results, Wall Street seems to have woken up, and the stock tanked nearly 25% since.

 

It’s amazing that anyone believed in such a fantasy to begin with; it feels like the 1990s all over again.

During the ‘90s tech bubble, conventional valuation metrics went out the window.

Back then, Wall Street didn’t care how much money these ‘tech’ companies (i.e. websites) were making.

They only cared about “eyeballs”, i.e. how many visitors was a website getting?

If the site traffic was substantial, the company would IPO at some absurd valuation irrespective of how much money they were burning through.

The classic joke in the ‘90s tech bubble was “We lose money on every sale, but we make up for it in volume.”

Today we seem to have returned to the same madness.

Profitability and Free Cash Flow don’t matter.

All they care about is “Daily Active Users”, and they bet billions of dollars on a company based on this figure.

In fairness this isn’t really about Snapchat. Maybe the company figures out how to turn things around. Or perhaps they become the next MySpace.

But Snapchat is far from alone.

Netflix is another great example; as a consumer I love the service, but as an investor I think it’s a complete joke.

Netflix hemorrhages cash and hasn’t had positive free cash flow since 2011.

In fact, Netflix’s operating cash flow losses more than doubled from MINUS $750 million in 2015 to MINUS $1.5 billion in 2016.

And the business is on pace to post a RECORD LOSS this year.

Yet in that same period since the end of 2015, the company’s stock price is up more than 40%.

Why? Subscriber growth. Eyeballs. Daily Active Users.

Netflix had 74 million subscribers at the end of 2015 versus 99 million today.

So Netflix appears to be losing money on every subscriber. Yet Wall Street seems to think that they make up for it in volume.

This really is the same madness from the 1990s.

Look I’m not here to tell you that Netflix stock is going to drop or that Snap will go bankrupt.

The larger issue is that financial bubbles tend to pop VERY quickly.

There is no financial fantasy that can last forever, whether you’re talking about unprofitable companies or governments that lose trillions of dollars.

Sooner or later you have to turn a profit. You have to generate positive cash flow. You have to balance the budget.

And as the Snapchat stock collapse shows, when the public wakes up and realizes this may not be possible, the consequences can be pretty ugly.

Do you have a Plan B?

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LawsofPhysics's picture

So, "mark to fantasy" forever!!!!

 

Sorry, does this author have a fucking point?

Haus-Targaryen's picture

I actually feel bad for the Tylers.  Its a financial blog based on the idea of free-markets.

When the free-market thing got pre-empted by TBTB in 2009 ZH was born as a "nah nah nah boo boo we know you're fucking rigging the markets and we're gonna watch you guys burn" 

And over the past 8 years I have had this feeling that there was this struggle between TBTB and market fundamentals, ZH played an important role in this, IMHO. 

Now I get the feeling that we've completely abandoned price discovery much of ZH's readership have kinda thrown in the towel.  

It doesn't matter what the news is, it doesn't matter what elections say, it doesn't matter what happens, FORWARD SOVIET

I have reached the point of apathy. 

NotApplicable's picture

Oh SNAP! Time to un-pimp ze auto.

https://i.imgur.com/ySMJyPL.gif

Say what you will, but it takes an exceptional company to lose $2B in a single quarter.

Giant Meteor's picture

I guess the fun de mentals were not strong enough .

The farce is not with them, but there is a disturbance in the farce

Kickaha's picture

...as if trillions in fiat cried out in horror, then ceased to exist.

The_Juggernaut's picture

2016, 2015, 2014, 2013, 2012, etc called.  They wants their ZH predictions of stock market doom back.

 

lmfao

Quantum Bunk's picture

Financials and oil have made post 2008 lows in this time period. Remeber past "trends" that came and gone in this period ? 3D printing, rare earth ,metals, farm land. The market is an absolute killing field. But you are right. To the casual observer, we are the goats (ZH et al)

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Ghost of PartysOver's picture

Feel free to correct me if I am wrong.  The 1990's did not benefit from the unleashing of Trillions and Trillions of dollars in QE money the world over.   That's a huge supply of money chasing a limited supply of assets.  I think there is an economic rule that pertains to this equation.

spastic_colon's picture

yes the growing supply of $$ is chasing (demanding) a shrinking supply of equities (buybacks)..........

LawsofPhysics's picture

Just wait until those dollars stop chasing paper/digital "assets" and start chasing real/physical assets and productive capacity!!!

spastic_colon's picture

the fed and EVERYONE knows that when the buyback arb reaches equilibrium (no longer profitable) that stock-splits and/or secondary issuance will have to take over........spinning plates.

daveO's picture

They may not be allowed to chase anything via bank holidays and capital controls. Prices fall, across the board. What you have in hand is all you'll have. That appears, to me, to be the logical conclusion of this ongoing theft.

BigFatUglyBubble's picture

Yea but if they print more, then the digits have less value.  They keep the bubble pressured and then let some air out like a balancing act, rinse repeat.  Nominal debt numbers don't matter, it's a communist economic system.  As long as there is bread and circuses, or we don't take LoP's advice, it will keep going.  OR they will crash it on purpose as controlled chaos to facilitate more wealth transfer (another bailout.)

daveO's picture

The 90's were the decade of the HELOC, private QE.

LawsofPhysics's picture

The reference to the Soviet Union is appropriate. The U.S. is heading to the very same end game, but completely expected.  Although no "market" is perfect, the best markets allow for the greatest degree of price discovery.

The Fed, and all their bought-and-paid for poltiicians  have as much as admitted that the American "markets" are nothing but policy tools...

"Full Faith and Credit"...

 

It appears, however, that nobody else is willing to re-attach their currency to reality, and so the Fed's casino remains open for business.

Place your bets...

Arnold's picture

Get your motor running...
Head out on the highway..
Looking for adventure...
And whatever comes our way....

noless's picture

I shouldn't be surprised at this point but apparently thats for real, also the statement on their website put "innovative" in quotes which is great.

CJgipper's picture

Me too.  I only trade currencies now - USD, EUR, and BTC, and invest in gold/silver/garden equipment, etc.

 

We haven't moved more than 1% in months.  We have companies WORTH negative amounts of money that are "worth" 10B USD.  It's completely fake, and if you want to tussle with the Fed....... It's completely fake.  Everyone else is welcome to fight the fed.  I'm betting against the USD and EUR and going home.

Quantum Bunk's picture

Very well worded. Exactly how I feel. The one thing we had going for us was a slow grind up in gold. But that ended up being a wet fish to the side of the head too. Nowhere to hide.

 

And the time keeps passing by. The whole period between the USSR collapse and Putin coming to power has elapsed since 2008. The US hasnt had a bear mkt in the same period of time

tmosley's picture

>Losing $15 per year per customer

Seems like they could overcome this pretty easily. Either apply the thumbscrews to the content owners, cut operating costs, raise prices, or some combination of the three.

Giant Meteor's picture

Or just cut the losses and sell to zuckerberg ..

third times a charm ..

 

Giant Meteor's picture

That unicorn was expensive ..

Xatos's picture

When the bubble pops everything will be Netfixxed.

Giant Meteor's picture

Nobody saw it coming ...

/s

Leveraged Algorithm's picture

I wonder if Jim Cramer will get on TV and explain how he saw it all coming..... He is the complete example of the braindead investor.  The guy is a complete fucking ass...

quadraspleen's picture

Good friend of mine just had a huge hospitality gig cancelled by Snapchat. He thought it was him. I put him straight. Silly twats. Whoever thought an IPO of Snap was anything like a good idea? *cough*

Jim in MN's picture

So we have no tulips, but we have PICS of tulips.

 

Roger that. 

economessed's picture

...and in the case of SNAP, the pic of the tulip disappears seconds after you see it, just like their absurd valuation.  I still find it odd that a sexting app can't make money, but what do I know, I don't work on Wall Street.

Iconoclast's picture

Bravo, brilliant, just brilliant! :-)

finametrics's picture

not quite there yet. but soon.

hsun85's picture

nonsense, i dont see a bubble anywhere. oh its because everything is a bubble, except for gold and silver.

Silver Savior's picture

One day all these bubbles will chase gold and silver but there is only so much. Ha ha ha some will have it but others won't because they are sheeple.

JethroBodien's picture

May the farce be with you!

wide angle tree's picture

It's different this time.

JethroBodien's picture

Twitter with a market cap over 13 billion.  This for a company that allows 140 character sentences to be sent over the interweb.

Giant Meteor's picture

1999 Called, They Want Their Stock Bubble Back...

Meh, tell em to get in line and wait their turn ..

Hope those exit door aren't nailed shut ..

E.F. Mutton's picture

"I lost my student loan money on SNAP, and didn't even get a lousy promotional sock puppet" - Joe Manbun, Barista for Life

GunnerySgtHartman's picture

I am waiting to hear the millenials start whining about how they lost money on SNAP - and then demanding that the government make it up to them.

Welcome to the real world, millenials.  Ain't it a bitch?

Byte Me's picture

Snapchat (?)

Isn't that a social media platty for EBT holderz?

Silver Savior's picture

OMG yes. Some people really pick up on it. It's a millennial thing. I call it a time waster.

Silver Savior's picture

1999 was a good year and one of the last. I just started working at the time but you could tell things were a plenty. Tech bubble or not. Now everything just sucks and is upside down. At least we have crypto now and a lot of reason to stack pms! That I love.

Gadocat99's picture

So Netflix needs to increase revenue $20 per subscriber per year to break even. $1.67 per month -- I would agree with that increase.