Prem Watsa has joined the chorus started by Samir Arora and Mark Cuban that E-Com Investors Are Guaranteed To Lose Big Money.
In his annual letter to shareholders of Fairfax Holdings, Prem Watsa points out that he is “always amazed” at the speculation that can take place in the stock market and how long it can last.
Prem Watsa refers to the mind-boggling valuations of Facebook ($223B), and Twitter ($31B) as an example of the rampant speculation.
| Market Cap. | P/E Ratio | Price to Sales | |
| ($ billions) | |||
| Social Media | |||
| 31 | (loss) | 21x | |
| Netflix | 29 | 111x | 5x |
| 223 | 73x | 17x | |
| 33 | 89x | 15x | |
| Yelp | 3 | 358x | 9x |
| Yandex | 9 | 19x | 6x |
| Tencent Holdings | 164 | 46x | 14x |
| Other Tech/Web | |||
| Groupon | 6 | (loss) | 2x |
| Service Now | 12 | (loss) | 17x |
| Salesforce.com | 40 | (loss) | 8x |
| Netsuite | 8 | (loss) | 14x |
He also points out that the “continuing speculation reflected in the stock prices of public high tech companies has moved to private high tech companies” as shown in the table below:
| Latest Valuation | Total Equity Funding | Valuation/Funding | |
| ($ billions) | ($ billions) | ||
|
Xiaomi |
46.0 | 1.4 | 32.9 |
|
Uber |
41.2 | 2.8 | 14.7 |
|
Palantir |
15.0 | 1.0 | 15.0 |
|
SpaceX |
12.0 | 1.1 | 10.9 |
|
Airbnb |
10.0 | 0.8 | 12.5 |
|
Dropbox |
10.0 | 0.6 | 16.5 |
|
Snapchat |
10.0 | 0.6 | 16.3 |
|
Theranos |
9.0 | 0.4 | 22.5 |
|
Square |
6.0 | 0.5 | 12.1 |
|
Stripe |
3.5 | 0.2 | 18.4 |
Prem Watsa adds that according to the Wall Street Journal, there are 73 companies that are valued at more than $1 billion by venture capital investors, versus half that number prior to the dot.com crash. He points out that Uber has a valuation of $41.2 billion as compared to the cumulative equity capital raised of $2.8 billion – i.e., the valuation is a hefty 14.7 times all of the money that was raised by the company.
At the end, Prem Watsa makes the spine-chilling prediction “We’re confident that most of this will end as other speculations have – very badly!”
excellent article.Thanks Arjun
What a joker he is, this shows the lacks of understanding and respect for Technology & Tech companies. LOOSER go buy RS Software and enjoy the returns. :))
When FACEBOOK was valued at USD 20Billion it had 0 (Zero) revenue and People like Prem Watsa said it is going to fail badly. Loot at its valuation and revenue figures today, mind boggling. Facebook today has acquired companies such as Instagram and Whatsapp and it is rapidly capturing ad-market and is giving GOOGLE a run for its money.
In western world people cannot think of a life without Facebook, Twitter, Netflix, UBER, Linked-In, Amazon and many more…….
Forget Prem Watsa, if given an opportunity I would jump into and buy Indian young start-up technology companies such as Snapdeal, Flipkart etc.
Regards
Bhs