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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Consuelo's picture

 

 

FB & bot farms, or it ain't real...

mary mary's picture

Off Topic:  Yeehaw!  GDX still rebounding.  IEF, BND, TLT just bounced up.  And... EEM still doing okay.

Deep Snorkeler's picture

Profitability and Cash Flow Don't Matter

Our economy is hollow and

the government is bankrupt.

Let's all keep this party going,

it's all we have left.

 

brushhog's picture

We had the stock market crash of 2000, followed by 9-11, followed by 2008 financial collapse. The US began declining at the turn of the century almost on Q.

MrBoompi's picture

The asscociation between a company's stock price and their profit or loss has been disassociated to the degree it only matters if the company goes out of business.  If you can buy low and sell high, or short before a drop in price, you don't have to worry about stupid things like the company's profit.  

all-priced-in's picture

The bubble is not in Snap

 

Look at a stock like MCD - just hit an all time high @ 145.45

 

Pushing close to 26x trailing earnings -

 

MRK with a trailing PE of close to 42

 

 

 

 

 

Giant Meteor's picture

Thats not the only place that "bubble" reveals itself. Just park at the door, scan the drive thru ..

Start back charging them for critical medical care ..

 

yogibear's picture

Let's shoot for 100x average earnings!!!!!

Kickaha's picture

100x anticipated upcoming earnings.  Actual trailing earnings is so passe' an indicator.

wiscodave's picture

I was going to cancel Netflix last year cause its movie and tv content had gotten worse, but thought I'd wait to see if it would get better.It's worse.I'd decided last week to cancel.This stock is going to the downside.Also fuck Facebook.

BigFatUglyBubble's picture

There is so many documentaries about the holocaust myth, it makes your head spin.  Although, there are some diamonds in the rough, if you dig around.

yogibear's picture

With more IPOs like SNAP the Wall Street people will all be able to afford islands.

Bryan's picture

Perhaps the author of this article has forgotten, or never known, that the 'stock market' of today is a gambling casino financed by the Fed?  They seem to be under the illusion that there is supposed to be something of "value" in virtual stock certificates.

south40_dreams's picture

But first we need to finish the recession of 1999/2000 without a war, and we need to finish the depression of 2008/2009 without bogus bucks. Oh joy.

alfredhorg's picture

Here is a PLAN B: TRASH DUMP!

https://howibeatgold.wordpress.com/2017/01/25/trash-dump-worker-invests-...

 

I will wait in the trash dump to pick through your carcass, Snapchat.

Ginandtonic's picture

Snapchat..?  I thought everyone was talking about Snatch Hat!  

Not the same company that makes those hats so popular with the women protestors...?  Thought that was going ot be the next lululemon or coach..

What the fuck did I buy then?

Ginandtonic's picture

Lol..  I bot ticker symbol SHAT.  An Indian textile co.  No doubt they make bedsheets heheh.  

Sweet Jesus they're up 25% YTD.   Perfect fucking trade.

BULL TRADERZZZZ's picture

Snap is one of the symptoms. The greed has almost gotten to an extreme I think. Still ZH writers keep trying to paint a bubble and the bubble keeps getting bigger and bigger.

 

the analysts at Shepwave seem to call the moves as they come before they come.  they don't go too far out in the future but just keep making money in the meantime without gettin all crazy.  thanks guys. 

 

 

https://www.facebook.com/166578775325/photos/a.10153488951800326.1073741827.166578775325/10154415124400326/?type=3&theater

StevieTexie's picture

They need to publish another article on ZH

Not My Real Name's picture

Are you Shlepwave shills finished sucking each others' dicks yet? Take it some place where people actually care so the rest of us don't have to watch.

Stormtrooper's picture

All that they needed in 1999 was unlimited central bank funny money generation and the NASDAQ would be at 30,000 today.  No profits needed.

Bricker's picture

Bezo has stacked 5.3 billion in the last 12 months

the not so mighty maximiza's picture

Women were fun in 1999