Loading...

Forum

You need to log in to create posts and topics.

Profit - Who Cares

Let’s called Uber, Tesla, and pick your other multi-billion dollar (still massively unprofitable) “start-up” our zombies.    There is no clear path to profitability.   Just lots of revenue and lots of debt.

In a world where all corporate debt it backed by the Fed, there is really no need to generate a Profit (Earnings). In that world, a PE Ratio is now a meaningless metric.

How do we now value these companies?  Massive cash flow zombies with no profit are now all of a sudden very viable long-term business models in this new nightmare of a theoretical financial experiment gone wrong.

COVID is nobody’s fault...   Well maybe some Chinese guy in a bio weapon lab.  But I agree that the CFO who used his excess cash to buy back his own stock had no idea this pandemic was on the horizon.  Why should his company go bankrupt for that decision?
Clearly there needed to be some government aid for all of this, and that is always going to be an imperfect process.   Some innocent were penalized and some folks guilty of taking excessive risk are now rewarded.  Not the first time we have seen this!!!!   That’s just the New Normal.

 

 

Massive cash flow zombies with no profit are now all of a sudden very viable long-term business models in this new nightmare of a theoretical financial experiment gone wrong.

Jumping in with a thought, hope that's OK.  I think that Tesla's valuation is wild and crazy but I also believe a lot of people believe there's some non-zero chance Tesla will eventually pay a dividend or will be acquired in the future.   I see Tesla as an amplified version of any growth company with no history of profits.  You are buying the stock on the hope that the company grows and pays a dividend in the (possibly distant) future.  It would be interesting if there were single name dividend futures contracts with longer lifespans so that we could see what the market prices of the 5, 10, 20 or 30 year dividend streams for Tesla and compare them to the current stock price.

In my mind the biggest issue is using debt or rainy day reserves to fund buybacks or dividends.  Is there an argument that this helps the overall economy?  On the flip side I also don't think that large companies hoarding huge piles of cash adds value for the overall economy.  If every company's dividend was extra cash left over after setting aside a buffer of cash reserves for a "typical" market downturn and profitable investment expenses that seems pretty simple / good to me.  If you receive a government bailout you have to first pay the bailout (or pay the government any losses it had in its equity stake), then kindly refer back to the previous rule.

Kevin