From the Zerohedge article found HERE
“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.
It still seems like economic collapse and war could be right around the corner. I see the signs in the news, on the internet, with the soldiers and government employees I talk to, and of course, in the prophecies of the Bible and Nostradamus that I study and write about. Definitely have a plan B, and a plan C, you are eventually going to need them.