Blitzscale and Hope: Unicorns, IPOs and the Fear of Repeating the Late 1990s
The current hype about two-sided digital platforms, blitzscaling and winner-takes-most markets has fueled a surge in IPO listings and produced stratospheric valuations that are difficult to reconcile with free-cash-flow (FCF) fundamentals. The big question is, are we repeating the excesses of the dot-com boom? In this paper, we look at the reasoning used by those who think history is repeating itself including IPO supply, profitability and VC funding. We also look at the weaknesses in those arguments and why some believe that the current situation is different from the dot com bubble, such as median age of tech IPOs and sales growth. Finally, we explore how investors can look at these companies through a free cash flow lens.
The P/E Ratio: A User’s Manual
Does a stock’s price and its P/E ratio tell you how much a company is worth? Conventional wisdom says yes, but we think otherwise. In this paper we explore:
- The theory behind the discounted cash flow (DCF) valuation model and the underappreciated role that ROIC plays in the model
- The P/E ratio and find that it does not tell us what most people think it does, nor does its offshoot, the P/E to growth (PEG) ratio
- How we can use what we have learned about the DCF model to deconstruct P/E ratios in the real world to better understand what they do tell us