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The California-based company is now dumping cash into original content to maintain its dominance over its growing field of rivals. The company’s had $423 million negative free cash flow during the quarter, wider than the $261 million negative free cash flow a year ago. Netflix expects to have $2 billion in negative free cash flow this year.
The tech-powered rally has catapulted the sector to a price-to-earnings ratio of 24.4, or 41 percent above the 10-year average. But as Google and Amazon stretch to nearly $1,000 a share, not everyone is comfortable with the valuations. Investors pulled more than $716 million from the most popular technology exchange-traded fund last week — the $17.4 billion Technology Select Sector SPDR Fund, or XLK — its largest weekly outflow in over a year, data compiled by Bloomberg show.
“Most everybody remembers 2000, so they might be getting a little nervous with this development,” said Maley. “I just wonder how many people have said to themselves, ‘If AMZN gets to $1,000, I’m going to take at least some profits.’”
Given groupthink and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose (don’t ask us what hell looks like…), a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral. The only way to take advantage of those opportunities is to have ready access to capital.
Posted: 26 Apr 2017 Michael Snyder THE ECONOMIC COLLAPSE BLOG
Have you ever wondered how tech companies that have been losing hundreds of millions of dollars year after year can somehow be worth billions of dollars according to the stock market? Because I run a website called “The Economic Collapse“, there are naysayers out there that take glee in mocking me by pointing out how well the stock market has been doing. This week, the Dow is flirting with 21,000 and the Nasdaq crossed the 6,000 threshold for the first time ever. But a lot of the “soaring stocks” that have been fueling this rally have been losing giant mountains of money every single year, and just like the first tech bubble this madness will eventually come to an end in a spectacular fiery crash in which investors will lose trillions of dollars. Anyone that cannot see that we are in the midst of an absolutely insane stock market bubble simply does not understand economics. Every valuation indicator that you can possibly point to says that we are in a bubble of epic proportions, and history teaches us that all bubbles inevitably come to an end at some point. Earlier today, I came across an article by Graham Summers in which he persuasively argued that the price to sales ratio indicates that stock prices are far more inflated than they were just prior to the great stock market crash of 2008… Sales cannot be gimmicked. Either money comes in the door, or it doesn’t. And if a company is caught messing around with its sales numbers, someone is going to jail. To me, looking at profitability is even more important than looking at sales. Large tech companies such as Twitter certainly have lots of revenue coming in, but many of them are deeply unprofitable. In fact, Twitter has never made a yearly profit, and over the past decade it has actually lost more than 2 billion dollars. But despite all of that, investors absolutely love Twitter stock. As I write this article, Twitter has a market cap of 11.5 billion dollars. How in the world is that possible? How can a company that has never made a single penny be worth more than 11 billion dollars? Twitter is never going to be more popular than it is now. If it can’t make a profit at the peak of its popularity, when will it ever happen? And guess what? ABC News says that Twitter actually just reported a decline in revenue for the most recent quarter… Twitter has never turned a profit, and for the first time since going public in 2013, it reported a decline in revenue from the previous year. Its revenue was $548.3 million, down 8 percent.The only reason why financial black holes such as Twitter can continue to exist is because investors have been willing to pour endless amounts of money into them, but now that bubble is starting to burst. In his most recent article, Simon Black discussed how Silicon Valley investors are starting to become more cautious because so many of these “unicorns” are now going bust. One of the examples that he cited in his article was a company called Clinkle… (Given that investing in an early stage company is high-risk, investors might provide a few hundred thousand dollars in funding, at most. Clinkle raised $25 million.)Most of you may have never even heard of Clinkle, but I bet that you have definitely heard of Netflix. Netflix has revolutionized how movies are delivered to our homes, and that revolution helped drive movie rental stores to the brink of extinction. There is just one huge problem. It turns out that Netflix is losing hundreds of millions of dollars… Netflix might be my favorite example.But even though Netflix is losing money at a pace that is exceedingly difficult to imagine, investors absolutely love the company. I just checked, and at this moment Netflix has a market cap of 68.4 billion dollars. Sometimes I just want to scream because of the absurdity of it all. Companies that are losing hundreds of millions of dollars a year at the peak of their popularity should not be worth billions of dollars. Nobody can possibly argue that these enormously inflated stock prices are sustainable. Just like with every other stock market bubble in our history, this one is going to burst too, and I have been warning about this for quite a long time. But for the moment, the naysayers are having their time to shine. Despite the fact that U.S. consumers are 12 trillion dollars in debt, and despite the fact that corporate debt has doubled since the last financial crisis, and despite the fact that the federal government is 20 trillion dollars in debt, they seem to be convinced that this irrational stock market bubble can keep inflating indefinitely. Perhaps they can all put their money where their mouth is by pouring all of their savings into Twitter, Netflix and other tech company stocks. In the end, we will see who was right and who was wrong. |
The Nasdaq composite fell 3.25 percent, as Apple and the iShares Nasdaq Biotechnology ETF (IBB) dropped 2.67 percent and 3.19 percent, respectively.Overall, LinkedIn is now down a total of 60 percent from the peak of the market. But they are far from the only ones that have already seen their bubble burst.
Also weighing on the index were Amazon and Facebook, which closed down 6.36 percent and 5.81 percent, respectively.
LinkedIn shares also tanked 43.63 percent after posting weak guidance on their quarterly results.
Yahoo (YHOO) shares are off 39%, and Netflix (NFLX), the best-performing stock in the S&P 500 last year, is now off by 37% from its 52-week high.But there are other very big tech companies that have seen stock collapses that completely dwarf those numbers. Here are some more absolutely stunning statistics from USA Today…
Likewise, Priceline.com (PCLN) is off 31% and eBay (EBAY), 22%.
Twitter and Groupon are the biggest dogs of this boom, both off 70% from 52-week highs and well below their IPO prices.When your stock loses 70 percent of its value, that is a complete and utter collapse.
FitBit shares have collapsed 70%, while Yelp’s valuation has shrunk by two-thirds.
Box, which has the distinction of posting quarterly net losses in excess of revenue, is down by half.
Match.com, the holding company for dating sites owned by parent Interactive Corp. that went public late last year, is down 39% from its high.
Some of the biggest names to get trounced include:When you lose more than 10 percent of your money in a single month, that is not good.
►Pershing Square Capital Management, the publicly traded investment vehicle of billionaire hedgie Bill Ackman, fell 11% last month following a 20% decline last year, data from the web site shows.
►Larry Robbins’ Glenview Capital, famous for picking stocks that could benefit from Obamacare, dropped 13.65% in January following a decline of 18% last year, according to data from HSBC’s Hedge Weekly report, a copy of which was obtained by USA TODAY.
►Marcato International, a well-known activist fund run by Ackman protege Mick McGuire, fell 12.1% last month following a 9% loss last year, according to HSBC.
Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.
“The world appears to be trapped in a circular reference death spiral,” Citi strategists led by Jonathan Stubbs said in a report on Thursday.
“Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)… and repeat. Ad infinitum, this would lead to Oilmageddon, a ‘significant and synchronized’ global recession and a proper modern-day equity bear market.”
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