I agree, only more so. I think the daily discussions, over months, are more valuable than the manual. Over that time period, I think the participant not only gets the gist of the manual, but gets the refinements in real time to the underlying tenets of Moore's thesis. Also, the participant conveniently misses out on the Godzilla BS, which was never substantiated by Moore, and which we sniffed out as BS (sort of like a hardback book, with nothing between the covers).
I've got to rant on this one. Please forgive me!
You know that's going to pull Sir Lyre out of his tights long enough to do a little discussion on the Godzilla business models of Amazon.com, eBay, America Online and Yahoo!. Yahoo! has already been presented in the Network Effects project by Don Mosher. I will concentrate on these four since they were the four that the authors of the revised edition added to chapter 12 for presentation. Through the entire year, the authors (be it in interviews, articles or the listserv) have been careful to note that the market was struggling to find a valuation for these stocks and that eventually, they would get it right. Hence, before we make comments that the business models of these 'big 4' are utter BS, it's important to remove that label and not confuse the share prices with the underlying company or business model. It's no secret that the share prices have come down as Wall Street has learned to figure out a more proper valuation for each of the companies. In spite of that process going on, the network effect of each and every one of these companies continues to develop and warrants watching as the years progress.
If you look at the companies below, there was a fair amount of BS involved this year for all of the share prices if that's what you want to base a business model or discussion on. How about ball park returns since the IPO's for some of those newer companies as well?
Intel at $75 or Intel at $31.
Cisco at $82 or Cisco at $45.
JDS Uniphase at $153 or JDS Uniphase at $49.
AOL at $95 or AOL at $44. 37,000+% since the IPO
Qualcomm at $200 or Qualcomm at $51. 8,733% since the IPO
Siebel at $119 or Siebel at $60. 4,605% since the IPO
Network Appliance at $152 or Network Appliance at $48. 3,939% since the IPO
Amazon at $113 or Amazon at $23. 1,475% since the IPO
Yahoo! at $250 or Yahoo! at $35. 1,412% since the IPO
Rambus at $135 or Rambus at $47. 500% since the IPO
eBay at $127 or eBay at $37. 384% since the IPO
I would submit that the amount of BS came from enthusiasm in the investment community as well as from we investors. Rather it was a Godzilla that was presented in the manual or one of the other royalty or gorilla stocks from the list above. Some other absurd BS is that the same analysts touting and saying to buy things like Yahoo! or Amazon or eBay near their highs are the exact same analysts saying to sell them down at these lows. Yet, if you take the time to uncover the balance sheet and income statements of a company like Yahoo!, eBay or AOL, then you're not going to find the level of BS that one might think is there. I happen to own shares of Yahoo! and America Online. I can tell you exactly what the margins, cash flow and state of the fundamentals for both of those companies are. It's not BS, believe me. If you can convince me, based on the fundamentals and growing network effects of both Yahoo! and America Online, that there is nothing there other than "BS (sort of like a hardback book, with nothing between the covers)" - then I'm all ears. I would be happy to compare the numbers that Yahoo! or AOL puts up alongside Microsoft, Intel, Qualcomm, Intel, Cisco, Siebel, etc... to point out that there is more there than BS. Be careful not to confuse the healthy valuation correction of figuring out what all of these companies are 'really worth' based on their fundamentals and growth rates with being BS.
Here are the Yahoo! numbers for the latest quarter:
• Revenue of $295.5 million, up 89.6% year-over-year
• Gross margins of 86.2%, up from 83.2% last year
• Net margins of 16.1%, up from 7.1% last year
• No debt and $1.6 billion in cash, up from $840 million in cash last year
• An estimated Foolish Flow Ratio of 0.26, down from 0.37 last year (down is a good thing)
• Cash King Margin of 51.0%, up from 37.9% last year
Here's the link to the analysis of the 3rd quarter numbers.
boards.fool.com
Far be it from me to say, but a BS company simply cannot put up numbers like that. Plenty of our gorillas/kings cannot even come close. Hence, one has to be very careful not to confuse the share price volatility and the market's reality of finally finding a valuation for this company. This Godzilla does have clothes, the market just never knew what price to pay for them.
I won't get into Amazon as their balance sheet and income statement remains the 'weakest' from that standpoint. Yet time will tell if they outlast the challengers that have been falling by the wayside this year. None of my comments are any sort of a recommendation for any specific Godzilla business model. However, I would make the claim that if you are basing your BS comment on the share price adjustments, then we should look to just as much BS in the enabling technology and software games as well to see what kind of share price adjustments were encountered this year as well. If you are going to do that, it seems we could roll up our pant legs and tip toe through that entire list above.
As with any of the enabling technology or software companies listed above, the Godzillas are in the midst of their TALCs as well and time will tell how the network effect helps or lack of effect hinders the business models going forward. That's why I think it was so important for a Godzilla business model to have been presented in the 'network effect' project - regardless of the pot shots it received.
The BS company of America Online has been one of the top performing companies in terms of returns for the past decade. Excellent earnings growth and - based on consensus estimates - has a PEG of 1.43 and a P/E of 82.
The BS company of Yahoo! has a PEG of 1.45 and a P/E of 107.
Coke has a PEG of 2.72 and a P/E of 80.
I showed you the Yahoo! numbers. Do you know how the others compare to Qualcomm, Network Appliance, Siebel, Cisco, EMC, JDS Uniphase in terms of market multiples, margins, cash flow, ROIC, etc....?
BB |
