🔒 Boardroom Talk: Today’s Big Question for investors: How to value those ‘Exponential-No-More’ stocks

LATEST ON BIZNEWS RADIO: SA’s new test case for Coalition Government – Retief Odendaal of the DA, now NMB Exec Mayor after 10 party coalition ejects disastrous ANC/EFF administration. (For Spotify, click here)

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As Tuesday’s big BizNews Portfolio restructure approaches (click here to register), the overarching theme is what to do when an Exponential Company loses that title. Exponentiality requires high double-digit growth. Embed that into spreadsheets and the results over time are spectacular. Ditto the ratings of stocks in the underlying companies.

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But when it reverses, the market’s reaction is brutal. Take Netflix. Its shares started the year over $600 a share. Numbers for the December quarter disappointed. Some immediately bailed, the share price immediately dropping $100 a share in the wake of the report. But some kept faith with a management which said the reverse was temporary.

Three months later, financials for the March quarter confirmed the smart money’s suspicions that Netflix’s exponential growth was indeed over. The price took another big hit and despite an uptick after better June numbers with revenue growing again (but only by a modest 8.5% yoy) the shares now trade at well under half the level where they started the year ($236). The critical point is Netflix’s “exponential” growth days are over.

The same argument could be made for other FAANGS with the exponential moniker like Amazon (revenue growth now 7%); Apple (2%) and, especially, Meta (formerly Facebook) whose revenue actually fell in the June quarter. Meta’s market cap is still a lofty $400bn, or 20 times net income. That’s an exponential rating. Not one for a business now contracting.

More for you to read today: 

• Black September in cloud-cuckoo-land. Jeremy Gordin says the country’s headline writers appear to be naïve if not delusional.
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• World’s Central Banks Race to Raise Rates After Fed Increase. The Bank of England was the latest to move, increasing its policy rate for the seventh consecutive time.
• Ukraine Prisoner Exchange Sparks Backlash in Russia. Some Russian supporters of war in Ukraine have been vocal about what they describe as Kremlin’s battlefield failures.
• How Much Can You Spend in Retirement? Answer These Questions First. A lot will depend on your health, how long you work, when you take Social Security and more. Here’s how small adjustments can make a big difference.

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