As IF Times

Source: Shares of Twitter Are Hitting New Lows – Bloomberg Business

Almost 2 years ago, we discussed the valuation of what we described as ‘gossip stocks‘, which referred to publicly listed businesses capitalizing on people’s insatiable appetite for social media applications. This included Facebook, Linked In, Zynga and of course Twitter.   Over the past  year, many other newly minted stocks in the new technology space have been dubbed “unicorn” stocks. This is a reference to the fact that while commanding laughable valuations in the private market and creating gobs of paper millionaires, actual revenues fall woefully short of expectations once they are publicly traded. So while the bankers and venture guys talk about future earnings gushers; like unicorns, no one ever sees them.

This great deflation of expectations on  social concept stocks has been masked by the general buoyancy of the overall markets in the past year.  Market nerds will point out that even as markets ratcheted higher and higher, there were fewer and fewer stocks making the move up.  Now, all of a sudden as the general market looks creakier, the enormity of the losses incurred by holders of these unicorn issues are coming to light. Here is a short list of market capitalizations of some selective unicorn stocks as of the close today:

Issue                          Market cap Jan 2014      Market cap Jan 2016       Peak market cap

Twitter                      $48 billion                         $13 billion                        $ 51 billion

Facebook                  $122 billion                       $215 billion                      $ 250 billion

Zynga                        $n/a                                    $2.2 billion                       $ 4.8 billion

Linked In                 $23 billion                          $23 billion                        $ 30 billion

GoPro                       $n/a                                     $2 billion                          $ 10 billion

Tesla                         $ 20 billion                        $ 26 billion                        $ 35.3 billion

Alibaba                     $ n/a                                   $ 17.5 billion                     $ 30 billion

As we note, Twitter has been one of the major losers in the valuation shrinkage metric, but other established technology stalwarts have also turned sharply lower, such as:

Apple                        $430 billion                        $ 537 billion                     $ 742 billion

Yahoo                       $ 38 billion                          $ 28 billion                       $ 49 billion

While this list is selective, they represent some pretty big write downs from their respective peak valuations. In the case of stalwarts Apple and Yahoo, they are considered bellweathers even though they are well past concept stage.

Once stocks become public, there is a lot more scrutiny on the enterprise’s viability.  There’s only the hard reality of  the next quarter’s earnings to justify valuation, not the extrapolation into infinity used by MBA whiz kids during the initial private to IPO stage.

Inexperienced market players may attribute the collapse in valuation as a function of an inability to execute on the part of the companies. The truth is actually much simpler.  In the case of newly minted issues, they may be surprised to find out that the original valuation and extrapolated cash flows were simply made up out of thin air.   That’s right, completely fabricated.  As long as backers are willing to fund the companies and the bankers agree to subsequently float at an agreed upon valuation, virtually any valuation can be had; especially with new concept companies having no history.  Makes sense. If you’re going to make up a number, make it a big one.  Who needs Powerball, when you can just write your own ticket?

The basic premise of most unicorns is that novelty and market share are more important than profitability…which will come…eventually…they hope.   In fairness, that actually did work for Amazon, a survivor of the last dot com bubble.  Amazon however, actually does have a business model and it’s not entirely based on selling ads.  As in all market cycles, the excesses and fluff eventually disappear, to be replaced by different versions of fluff in the next cycle.  As the general market begins what looks to be a longer term retracement, there may be more than just unicorns that people should be leery of.  The creature that people should really be afraid of…is the bear.

Update: Uber

Update 2: Crash of Tech Stocks

Source: Philadelphia police officer shot in patrol car – CNN.com

There’s a crazy rumor flying around that the shooting of this Philadelphia police officer was rooted in radical Islam.  According to the authorities, this is completely unfounded and the mayor stated categorically that this incident had nothing to do with Islam.  This goofy notion possibly got started because the perpetrator was heard shouting “This is in the name of Islam” while shooting the officer.  But who knows.

The tragedy of the San Bernardino shootings last month also stirred rumors of radical Muslim involvement.  But so far, the public is told that the cache of weapons, explosive devices, tactical military gear and communication with nefarious groups in Syria doesn’t mean anything.  Apparently private emails have them communicating with such groups,  but the shooters didn’t declare it on public social networks, so therefore it doesn’t count.

Meanwhile, at any time that there is a fatal shooting, the entire population of legitimate gun owners are cast as being crazed killers and wing nuts. If the shooting toll on a typical Chicago weekend hits 2 dozen, it implies that it’s the hillbilly, right wing paranoid gun owner in Texas that is to blame and therefore more restrictions are needed on gun ownership.  Anyone with a passing exposure to logic, or over the age of 10,  can see the insanity of the narrative.

So here’s the logic analogy using dogs.  In the first example, a specific breed of dog begins to noticeably bite humans after signaling their intent in dog social media.  But apologists point out that not all of this breed are dangerous and that irrational fear of this breed is unfounded. People are encouraged to get more of these dogs.

In the second example, another very specific breed also bites humans.  But in this case, dog owners of any and all breeds are imposed with ever stricter rules placed upon their ownership and derided publicly for wanting to own any kind of dog.

This brings to mind the old chestnut; there are no bad dogs, only bad owners.