Over the last few years I have made it abundantly clear that sooner or later it would be shown that the whole Silicon Valley meme of “It’s different this time” (i.e., in regards to unicorns, social everything, eye balls for ads etc., etc.) was nothing more than the equivalent of a teenager’s response of “because” when arguing why valuations of many of “The Valley’s” newest, or trans-formative platforms were clearly not only out-of-whack with reality, but bordered on insanity.
A $BILLION dollars+ in valuation was thrown around as if it was “a given right.” “Who cares if it makes money today” the thinking went. As matter of fact, for many, who cared if it made money ever! It was still worth $Billions if you could get some investors to throw some cash at you, then, with a little bit of alchemy (actually a lot of alchemy) you could take a few $Million in subsequent funding rounds to $Billions and cash out via an IPO. Rinse, repeat.
If anyone questioned the bottom-line business metrics? Like a teenager; just stomp your feet and speak a bunch of incoherent figures and meaningless comparisons. Then, when you ran out of meaningless drivel, just finish your statement with, well, “It’s different this time.” However, it is precisely this once overused defense for magical thinking that is now rearing its dark side. For now, it just might be exactly that – and “because” may also have more coherence to solidify that reasoning than any teenager could have dreamed of.
Why do I make such an argument? I’ll give you one word that says it all: Twitter™.
As I type this Twitter shares are currently down over 15% from yesterdays close. By the way it’s going as of the mornings session, it looks like it could take out its all time lows by the end of day, if not sooner. After all, those lows are far closer than its closing price last night. Yet, there’s a much larger issue at play here that nobody as of yet (as far as I’ve seen) has put the real issue that is troubling for the whole “it’s different this time” players. That issue?
Twitter increased the one metric the whole meme (and in my opinion – survival) stands on. e.g., user growth. And what was the reaction? Hint: If you currently own shares – you’re not happy. As a matter of fact you might also be a bit confused. After all, “user growth” (i.e., eye balls for ads) you were told (or sold) as the metric that beats all others. So why are the shares down? Well, I can only surmise: “it’s different this time.” Oh yeah, and – “because…”
Because, as in: “where’s my money” now matters more to Wall Street then “we’ll make money, someday.”
For those who’ve been with me for a while know I’ve been pounding the table (and keyboard) stating that you’ll know everything has changed when suddenly the metrics that were touted as the defense of “it’s different this time” suddenly seem to not matter. And to watch for when these metrics are “beaten” as in surprised to the upside – and the stock gets pummeled regardless. And in my opinion not only: Here we are. But rather: And it’s just beginning.
If you want more clues just look to Apple™ earnings reported also yesterday and the subsequent reaction in its stock price. The reaction?
Hammered is a worthy description. However, there’s a very big difference that must not be lost. For whatever you think of Apple and its stock valuations one thing is very different when it comes to comparing apples to apples (i.e., “the Valley”) Apple increased its cash hoard by $Billions because (and there’s that word again that now truly means something) it generated net profits in excess of actual cash that can either be saved, or used at another time. In other words – it added cash – not “eye balls” the exact opposite of all the others. And the reaction? Remember “hammered?”
How does one think this is going to play out for the 800lb “eye balls for ads” elephant in “The Valley” Facebook™ when it reports later this evening?
If you’re a business person of any sort I believe this is one earnings report in both timing, as well as, the response to what is not only reported, but rather, what transpires on the conference call and the resulting reaction too it.
It will be interesting to see exactly what the tone will be of those analyzing Facebook’s latest report once they finish digesting and parsing out what the latest implications from the Federal Reserve announces later this afternoon right before.
If the mood is dour from the Fed. going into Facebook’s earnings, Zuck and crew might find there’s not as much “love” or “likes” for its current valuation. Regardless of any improvement in “eye-ball” metrics.
I believe the focus will be more on “where’s my money” before he allocates it into another WhatsApp™ buying spree with their money. But, we shall see.
Regardless of whether you use, like, or have anything invested in the Facebook one thing is abundantly clear, and will become even clearer this afternoon.
Is it different this time – because…the party’s truly over? After all, what would one expect when many in the valley put more stock into their A-list for their themed parties rather than their company’s bottom line. Or, openly stated – “for charity” – they’ll be selling also.
Again, we shall see.
© 2016 Mark St.Cyr