This is a chart provided by JP Morgan.
“Unpofitable Tech” is now an investment category with its own index, you know like “durable goods” or “online retail” or “Asian Emerging Markets.”
We might as well have one called “Fraudulently Rated Mortgage Bonds” or “Ponzi Coins.”
Anyway, according to the chart, being “profitless tech” used to be AN ADVANTAGE to attracting investors. Until recently, people paid more for stocks in the “profitless tech” index than for “regular old stocks.” Right now, it is just not a disadvantage.
“Profits? We don’t care about no stinking profits. As long as you call your video-streaming company a tech company we’ll pay a fortune for it.”
By historical standards, paying 20x earnings for a company is generous. Here is what’s been going on.
Investment seekers: “We are an insurance company.”
Investors: “We are not interested. Your company is worth 20x earnings.”
Investment seekers: “Hmmmm . . . . Well . . . We have a website. Our employees have computers on their desks and they text each other with cell phones.”
Investors: “Well then, you are a neat-o trendy tech company. Earnings don’t matter. Whatever earnings you project we’ll pay 70-80 times that.”
.
.
.
I don’t know how bad things will get, but qualitatively, what’s been going on is no different than mortgage mania, dot.com mania, or tulip mania.
