Trump social has a market cap of $4.7 billion and will never make a profit.
X (Twitter) has a market cap of $8.5 billion and will never make a profit.
Let’s not even talk about Tesla having a market cap of $660 billion which is double or triple that of all the other auto manufacturers COMBINED.
So how is it the first two platforms I mentioned (that always lose money and will never be massively profitable) can have a market cap in the billions?
HODL BABY
TO THE MOON
The X ticker is not X.com, it’s US Steel.
I have no idea what I’m talking about, but to me it seems like the Internet is the primary reason for the absolutely obscene and ridiculous valuations we see in companies now. 40 years ago the odds of a company’s stock skyrocketing overnight was unlikely because investors were far more deliberate, and there were far fewer of them.
Now anybody with a bank account and a computer or cell phone can buy and sell as they please. This leads to run-ups in stocks, which begets even greater run-ups. This, combined with the ludicrous success of fairly young companies (Microsoft, Amazon, and Apple, for instance) gives people all the motivation they need to dump tons of money into companies that are not currently profitable, and may not even seem profitable in the foreseeable future.
After all, those three companies spent many, many years in the red. Now they have a combined annual profit of something like half a trillion dollars.
Plus, there are far more people using the stock market less as a vehicle for long-term investments and more as a vehicle for short-term gains.
Now hopefully somebody who actually knows the stock market can come by and give a good answer.
Tulip bulbs. 
People.
I assume you’ve met them ^_^
I imagine high frequency trading plays a role as well, with money being made off movement instead of anything the company does.
Ohhh… That’s good.
Just as a background I work in cybersecurity/risk but I hold a degree in business and focused on economics. I’ve been actively investing for 30 years. I read the financial news (e.g. WSJ/Economist/etc. daily). I also consulted at several large financial institutions including one of the trading markets so have a decent amount of finance exposure.
And despite all that “head start” you’re pretty spot on here at least identifying the high level elements that have redefined how we look at markets and valuations. You’re off the mark on AAPL, MSFT, and AMZN but I’ll get to that last.
I’d start by saying it is useful to think about the two main groups investing right now - institutional investors and retail aka individual investors. The main difference being somewhat obvious but I’ll spell it out anyway. The institutional investors are generally speaking investing for financial firms or on others behalf. They are the “professional” investors. The retail investors have various skill levels but generally speaking are lower skill, lower access to information, and less capability to execute.
Another important factor is that something like now 60% or so of Americans have some sort of stock/bond ownership. Mostly in the form of 401(k)/401(a)/403(b) type accounts. Those funds are included in the institutional portion of the market (~75-80%). However over the last decade or so, we have seen increased growth in the amount of funds outside institutional investing. That 20-25% is money being invested by the retail investor class.
In any case, what that all means is there are many more people in the markets than there have in the past. There are people consistently investing paycheck after paycheck automatically and entrusting it to institutions. More retail investors are doing so as well in various forms. That’s more money in the system, that means more purchasing demand and that generally speaking means higher valuations.
That isn’t necessarily bad though, that mostly means that there is more capital available and established mature firms can tap that capital to invest in useful activities. There are trade offs there but seeing higher Price/Equity ratios make sense. For now at least, there isn’t any real reason to think on their own that they are problematic even when out of line with “historical trends”.
Another factor is that the growth of the retail investor class is causing distortions. Many of them aren’t disciplined investors. They don’t have the skills or capabilities to allocate capital wisely or strategically. They are more prone to influencing and scams. We also have some anecdotal evidence that there is some financially sizable group of them engaged in high risk trading activities such as options trading. You can go read /r/wallstreetbets or monitor #memestocks to see the activity. This has price impact but it also has some impacts on institutional investing.
The institutional folks don’t often say it out loud but they seem many of the retail folks as insurance companies right now. They can take slightly more risk because they know they can sell some of that risk to the hapless retail investors. In other words, some of the retail investors are playing high stakes poker against teams of professionals. And they are generally losing.
In other cases, we see the grifts like Trump’s social media company where hapless deplorables are donating their life savings to Trump. Several of the people and organizations involved have already been targeted for enforcement action by the SEC. But still these fucking morons give him money and might elect him President. In other words, some of these idiots are distorting the markets through sheer recklessness and of course greed both in the institutions and retail investors are in play.
As to Microsoft, Amazon, Apple? MSFT has been turning profits since the 80s. In 1990, their net income was about $200M and this year they are closing in on $88B. Apple? They had some soft times but they are turning a profit of $96B. Amazon $30B. They did grow quicky in the last 20 years for sure but in the end this isn’t some fad boom. They are delivering real results. And there is little reason to not think they are long-term sustainable results either. In fact, the biggest knock on those companies are that they have stalled on growing their ridiculous profits. If they stood still, most companies would never even catch up to a fraction of their annual profits.
Thank you for the insightful post!
FWIW I wasn’t insinuating that Amazon, Apple, Microsoft, et al don’t deserve their valuations. On the contrary, I was using them as examples of stocks that became extremely valuable in a relatively short amount of time. Stocks where, if you had the foresight, you could have invested relatively little money and reaped huge rewards.
People look at these companies and wish they had gotten in on the ground floor before they exploded. I was positing that this kind of wishful thinking has led people to dump tremendous amounts of money into unproven businesses (particularly tech-oriented), in the hopes of striking it rich.
Of course since everybody feels that way, you end up with companies like Tesla being extremely overvalued, and unlikely to ever pay off in the long run.
This is a far different mindset from the investment strategies of ye olden days, where you would invest money into successful businesses in order to profit from their success. You never expected the stock value to increase 20 fold in a couple years.
There’s profit, and then there’s value. If McDonald’s was nonprofitable it would still be worth billions because of the real estate is owns, as well as value in all the buildings, which could pivot to something profitable. Then you consider future outlook, which is where the 90s got away from us, but still made sense for Amazon.
Because money is fake and the stock market is a casino.
Trump social had some value and still does based on Trump being relevant. Thus users, thus ads, thus potential future revenue. Twitter is worth what someone will pay for it, probably 10B or so at this point, for the same reasons, plus if Elon got the boot it could turn things around and get back to being the defacto platform.
It’s endless fun watching this stock crater:
Guess the Technical folks were onto something this time! There’s no more resistance because it’s at its lowest point, so just bagholders now.
If the unlock on some or all of his shares is Sept 20th, anyone who hasn’t sold by the 19th is looking for trouble.
My guess is he’ll begin dumping immediately and conveniently forget to file w/ the SEC so he can continue dumping to the suckers.
You know Trump will dump at least 50% of the stock he holds no matter the price. You’d have to be a idiot to not sell now.
Absolutely. It’s still a ton of money for literally zero effort.
The good news is that there are no victims who own DJT. Even the ones who lose their entire life savings (and there will be many of them) will do so happily for Trump.
The rest are just memestock buyers who I would hope know the risk.
He can’t sell until the 25th.
“Lock-up Period” means the period beginning on March 25, 2024 and ending on the earliest of (i) September 25, 2024, (ii) the date on which the closing price for the Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalization and the like) for any 20 trading days within any 30-trading day period commencing on August 22, 2024, and (iii) the date on which the Company consummates a liquidation, merger, share exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their equity holdings in the Company for cash, securities or other property.
https://www.sec.gov/Archives/edgar/data/1849635/000114036124033170/ny20031506x5_424b3.htm
Here’s the fun thing: You know how we (or at least “I”) were frustrated with Trump actually getting a real amount of money to finally be a multi-billionaire? Doing some quick math, even if he was able to dump every share at $15 it would only be 1.7B or so. And of course he can’t do that, because there’s no guarantee it won’t keep dropping, and there’s absolutely no way he can find buyers for that much of it unless some asshole real billionaire throws him a bone. Like Musk, for instance.