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

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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: 

Putting our money where our mouth is – 36ONE’s Cy Jacobs
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