When people look at the market and the valuations, often there is a reference to the dot com bubble on 2000. If you go back 20 years, people looked at the internet and how to many money from it, there was a theory the more likes or the more people had access to your website somehow the more money would flow into the accounts. At this time a company called AOL using this theory sent hundreds of millions of discs with their information and people could use their email. People did use the email and the stock of AOL rose to allow it to merge with Time Warner as equals. Time Warner is a media company with billions in dollars of revenues, but it was seen as a non internet company and valuations on internet companies were the thing. Time Warner continue to produce billions in revenue, but AOL did not monetize because advertising were not rushing to the door just because the company had potentially millions of users. AOL revenues never materialized, companies such as Facebook and Apple and Google came in and swept up the billions of dollars of revenues which made them the giants they are.
Companies have assets, AOL was sold to Verizon Communications which itself is very good at making money from the telephone and mobile phones. They thought the cross selling would work, spent a great deal of money and time to make money in the media and advertising world. In an article from Reuters, Verizon decided while AOL and Yahoo have value, Verizon will not be able to grow the business at multiples they expect and sold the companies to Apollo Global. Verizon wrote off $4.6 billion in 2018 and sold the business at half at what they bought it at.
Linking to dividend paying stocks, during the dot com bubble, multiple companies arose to be the next big thing because Wall Street buyers were buying a theme of number of people who see you website or viewers; the only thing is viewers do not translate into buyers. Some do which ones? When Budweiser advertises, some people will drink Bud, but everyone? When prices rise on the “greatest thing since slice bread” you have to be cynical or be able to remove your money from the table quickly. The theory will be everywhere you look but does it make money for the company? If all you see is cash burn or using cash to stay in business, then the money you invest should be speculative money not stable money. For stable money look to companies which can make profits every year and use the tools to continue to make consistent profits. In all industries it takes time to figure out which company will dominate and which ones are an idea to be tested.
There are more questions than answers, till the next time – to raising questions.