Mike,
I agree that something seems wacky here. The market caps look way overblown due to hype and momentum investors. It seems that today, every company is assumed to be a winner until proven otherwise. Risk is not factored into valuation properly, resulting in the spectacular crashes this market is famous for (like NextLevel - did i read that 65% of all their revenue comes from sales to ONE company???). The situation is further exacerbated by the dot com crash as speculators simply have no where else to go.
Some of these companies may prove to justify their valuations or perhaps grow even bigger, but all of them cannot be winners. The ones who survive will use their inflated stock to purchase up smaller players, perhaps causing value and market cap to converge.
Overall, it looks to me like the vast quantities of money being thrown at optics and the last mile are distorting the natural evolution of the industry. What results is an accelerated endgame scenario. The consumer wins big, so do the investment banks, and VC's. The investing public gets screwed (but then again, it is the investing public's ignorance which is at the root of the problem - or is it the Wall Street/Silicon Valley marketing machine).
In the end, ROIC is greatly diminished. It could be argued that since everyone now assumes they "know" how the industry will play out, risk has become a non - issue, which leads to overinvestment and lower overall returns. Someone mentioned in a prior post how the ILECs will likely be the eventual beneficiary of all the costly premature investment in the last mile, I think this is the type of scenario that has and will continue to play itself out in various tech segments so long as the markets treat growth as the end all be all of investing.
-enam
PS - As a caveat, I put very little faith in TAM projections 4 yrs out in a segment this new. I also find it interesting how today's stock market is such a function of supply and demand, and as a result is sensitive to inflationary pressures. I think that a large part of the reason why we have not seen higher inflation in the economy is due to the transferrence of the phenomenon to the capital markets. Stocks have become a good just like anything else, only more liquid than "hard" assets like durables. With value so out of favor, I'm somewhat surprised we haven't seen more of a resurgence in LBO's. |
