Hi Nihil,
Under the old rules companies were supposed to generate cash - back when there wasn't an Internet revolution in progress. Under the new rules in the Internet revolution, companies are supposed to invest in the growth of their future business opportunities which will quickly ascend in a hot economy, and companies are suppose to acquire market share even more quickly (before their competitor does), and no profit (during the revolution) is not as serious as market share or investment in growth opportunities, when the market is moving fast. Everything is moving faster.
Under the new rules, if you have any profits, it means you aren't moving fast enough, it means you aren't hiring enough employees, aren't buying enough ads, aren't buying out your competition. So what's the goal? Cash or market share? I think the analysis is from an old rules perspective (before the Internet revolution) and is why a decrease in free CF doesn't necessary imply the stock isn't a growth stock. Having said that, at any point, an about face can occur. When the institutional investors change their sentiment and have decided the valuations feeding the Internet revolution are crazy, the old rules will be back. However, 1997 and 1998 seem to be under the new rules (the Internet boom), and the VCs and institutional investors keep plowing the money. If Intel hadn't invested as they did and hadn't spent CF towards their future, they could have missed out on a lot during the Internet revolution and could have jeopardized their strategic future. The Law of the Internut Economy might be:
- Speed is key
- Time is not renewable
- Money is
- Growth and Marketshare is key
Regards,
Amy J |
