How it was in 2000.
"But it was a short and unpleasant ride. By September of 2002, the combined market cap of the Four Horseman had crashed to just $450 billion. Exactly $1.0 trillion of bottled air had come rushing out of the casino.
"But it was a short and unpleasant ride. By September of 2002, the combined market cap of the Four Horseman had crashed to just $450 billion. Exactly $1.0 trillion of bottled air had come rushing out of the casino.
Since it had earned $2.6 billion in the most recent 12 month period, its lofty market cap represented a valuation multiple of 210X. And Cisco was no rocket ship start-up at the point, either, having been public for a decade and posting $15 billion of revenue during the prior year.
Nevertheless, the bullish chorus at the time claimed that Cisco was the monster of the midway when it came to networking gear for the explosively growing internet, and that no one should be troubled by its absurdly high PE multiple.
The same story was told about the other three members of the group. During the previous 24 months, Microsoft’s market cap had exploded from $200 billion to $550 billion, where it traded at 62X reported earnings. In even less time, Intel’s market cap had soared from $200 billion to $440 billion, where it traded at 76X. Dell’s market cap had nearly tripled during this period, and it was trading at 70X."
How it will be in 2015 (probably) or 2016.*
Needless to say, the absurdly inflated values of the Four Horseman in the spring of 2000 looked exactly like the FANG quartet today. Thus, Facebook reported $2.8 billion of net income in the most recent period, thereby weighing in with a 107X PE multiple.
Likewise, Netflix currently trades at 307X its LTM earnings and Amazon at 950X. Even Google, which has now smacked into the law of large numbers with revenue growth of just 13% in the last year, is valued at 32X.
Moreover, despite its overflowing creativity and competitive prowess, GOOG is not a technology company which has invented a rocket ship product with years yet to run. Nearly 90% of its $72 billion in LTM revenues came from advertising."
These companies probably will be still strong but their stocks will plunge.
"In this regard, Cisco is the poster child for this disconnect. During the last 15 years its revenues have grown from $15 billion to nearly $50 billion, and its net income has more than tripled to nearly $10 billion per year.
Yet it’s market cap today at $140 billion is just 25% of its dotcom bubble peak. In short, its market cap was driven to the absurd height recorded in March 2000 by the final spasm of a bull market, when the punters jumped on the last momo trains out of the station.
This time is surely no different. The FANG quartet may live on to dominate their respective spheres for years or even decades to come. But their absurdly inflated valuations will soon be deFANGed."
*The Japanese economy is already rolling over. I doubt this ZIRP-fueled casino can continue to 2017.
Read more here:
http://davidstockmanscontracorner.com/when-wall-street-gets-defanged-look-out-below/
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