…A Bubblicious Breakfast Of Unicorns And Slippery Accounting
Consider the case of Amazon. Its PE multiple on LTM net income of $328 million has dropped from 985X all the way to…….well, 829X! Likewise, it’s now valued at 97X its $2.8 billion of LTM free cash flow compared to 117X at year end. In the same vein, Facebook’s LTM multiple on net income has dropped from 108X to 96X.
So the reason to revisit the FANGs, and the Amazon bubble in particular, is not because their market caps have come down to earth; it’s because once you get inside, another characteristic of late stage bubbles comes lurking front and center. Namely, the tendency for the accounting income of momo tech stocks at bubble tops to be bloated with non-sustainable revenues and profits from Silicon Valley burn babies…
…I was reminded of this possibility by an excellent post by Dave Kranzler at Investment Research Dynamics. In a piece called “AMAZON dot CON” he took me to task for being too kind to Jeff Bezos’s ponzi accounting. Among other things, Kranzler went all the way back to the beginning and offered an even more dramatic juxtaposition of the bubble in the stock versus the reality on the ground:
Throughout its 25-year history as a public stock, AMZN has delivered a cumulative total of $1.9 billion in net income to shareholders. Jeff Bezos made $16 billion on AMZN stock in 2014.
You can read the rest of Stockman’s commentary on AMZN here: Amazon And The Fantastic Fangs