To Face/Book losses of 35 lac crores

 What if I told that in US Stock Market, a company lost a total of 35 lacs 25 thousand 800 crores since Sep last year in Market Capitalisation ?   Yes, A loss in valuations of about 6 lac crores every month for last 6 months!!! That is about 6 times of our monthly GST collections approx.Will you not be curious to know which company it is? What if the company is a very famous one, the one least expected to suffer loses in its value... The company that owns all the 3 social networking apps below - 

Of course, We are talking about Meta Platforms Inc (formerly knowns as Facebook Inc.). The company has lost about 40% of Share value in last 6 month even though it has not reported even a penny loss! In this blog, we will look at why Facebook lost so much recently. 

The Primary reason is what we call the PE Multiples that a company commands. PE means Price to Earnings ratio and it basically gives an idea of how many times' Earnings, Market wants to pay for a company. 

So in the example above company A earns only INR10 but commands a share price of INR500 but company B with double the earnings commands only INR450, 50 less than Company A !! This is because Market thinks that Company A will continue to make a minimum INR10 for next 50 years while Company B even though earns more but will be able to earn that much for only 22.5 years.. so longer the "Expected" Earnings, higher the stock price. 

Lets come back to universe of Metaverse, During Sep 2021, Company announced a net income of 83,800 Crores and it commanded a PE of 25 times earnings. During the result announcement, they highlighted their worries about the future earnings. 6 months later, in their next result announcement, they announced a net income of 77,800 Crores and they continued to raise concerns about its future earnings growth. This spooked the market and Market immediately decreased the earning multiple it wanted to pay for Meta Inc, from 25 times to 16 times, a 36% reduction, that resulted in Market cap loss of 35 lac crores approximately. Even if its Facebook, Markets are ruthless in the way they value a company. 

The Purpose of writing this blog is to caution our readers about the recent Tech start ups that have listed in Indian Stock market, PayTM, Zomato, Nykaa, Policy Bazaar, soon to be IPO-ed Ola.. All these companies have on thing in common, they are all loss making company. Purely because we are in a bull market, these company are getting unusually high Earnings' multiples. Once they start announcing quarterly results regularly and if there is no sign of these companies making profits, the Markets will brutally write off these companies and It is our hard earned that will never come back to us.. 

Dear Readers, we are at prime of a bull market and every sundry company will look like next Google, Facebook, Amazon and what not, but be doubly careful what you bet your money on. Even a company  that is earning as much as 2.4 lac crores yearly is not spared, Imagine what would happen to these Loss making Hyped companies... Before we sign off, Do watch this Evergreen clip of Legendary Jaspal Bhatti on how people get fooled in Share Markets, especially during Bull Market - https://www.youtube.com/watch?v=0Q7DPIGgiHs 


For financial planning and investment-related queries, write to us at dropletadvisory@gmail.com or call us at 9962399924 / 9551373455. Visit our website - www.dropletwealth.com

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