Topic: Stock prices
Snap Inc Share Price Falls Below IPO Price for First Time (Jul 10, 2017)
Tesla is now worth more than Ford after delivering a record number of cars for the quarter – Recode (Apr 3, 2017)
There are two things here: firstly, Tesla’s Q1 delivery number, and secondly what’s happened to its share price since it was announced. Stock valuations are interesting, but far from definitive as indications of what companies are worth or who’s “winning” in any meaningful sense. Tesla’s stock price is all about trajectory, and an unusual (perhaps even unwarranted) amount of investor confidence and enthusiasm that the company which is currently very small and unprofitable compared to its legacy peers will quickly catch up on both fronts. That, in turn, requires believing in Tesla’s manufacturing projections, which require a massive increase in its growth rate, from 56% annual growth in the past year to something much faster to hit its 500k target for 2018, which would be a six-fold increase over its 2016 numbers. Long-term, it seems very likely Tesla will reach that kind of scale, but given its track record, there’s every reason to believe it will hit this and other related targets later than it has projected. On that basis, then, the valuation seems that much less justifiable on the basis of any near-to-medium-term results.
Snap’s shares pop after $3.4 billion IPO – Reuters (Mar 2, 2017)
Snap’s IPO was widely expected to come today, and it ended up being a great debut for the stock, which rose 44% by the time the market closed, though it’s lost a little since and seems to be fairly volatile. As I’ve argued, the IPO itself comes at an extremely risky time for Snap and its investors, because there has been slowing growth but not enough time to see whether that growth will rebound, making future growth uncertain. The pop today wasn’t a surprise – the market has been so hungry for a major tech IPO for such a long time, and Snapchat is such a hot property, that retail investors chasing the next big thing were always going to jump in in a big way. At this point, Snapchat’s growth could still recover and it could go on to become one of the big success stories of the 2010s, or it could become another Twitter – there’s really no way to know at this point.
I’ll keep this brief – as I’ve argued previously, what happens with stock prices (and purchases of stocks) is at best a secondary indicator of what’s going on with a company, and at worst an entirely separate game that’s more about confidence in a stock than the company itself. Warren Buffett and Berkshire Hathaway are slightly different animals though – he’s notoriously conservative and long-term in his thinking about his investments, and only recently made his first tech investment in IBM, which is about as blue chip as they come. So the fact that he’s added Apple to his holdings and then doubled his stake recently is worth noting for the fact that even someone as conservative as him sees a long time upside in owning Apple stock. More interestingly, he’s invested on the basis of seeing how real people feel about the Apple products they own, which Apple itself also argues is one of the most important metrics you can look at when it comes to predicting its future.
I’m tying this story to the Apple is Doomed narrative because it would be easy to see today’s news as evidence that investors don’t think Apple is doomed at all. But if you take that approach, you’d also have to say that investors did think Apple was doomed nine months ago when its stock price fell to two thirds its level at today’s close, when in reality that movement tells you a lot more about investor skittishness than Apple’s actual prospects. Apple continues to be massively undervalued relative to major peers, and that reflects an ongoing skepticism that Apple’s ability to sell massive numbers of devices is about more than just smoke and mirrors. Apple is the exception in the consumer electronics market, which is otherwise characterized by low single digit margins at best, and I always suspect that some financial analysts think this is the result of some kind of sleight of hand that will eventually be exposed – there’s really no other explanation for the ongoing under-valuation. The massive swings in Apple’s stock price over time – its 12 month range goes from $89 to the $133 it hit today – are much more about investor skittishness than underlying performance. Certainly there was nothing in Apple’s last earnings that should have triggered such a significant change in sentiment – they were decent results, but guidance for the next quarter wasn’t great, and as usual there was nothing concrete about the company’s longer-term trajectory from management. I continue to be very bullish on Apple in general, but I certainly don’t base that conclusion on what’s going on with the company’s stock price.