
Why Wall Street Is Battering Tech's Biggest Names - iProject
http://www.wired.com/business/2012/10/wall-street-batters-aapl-goog-amzn/
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ajiang
It's important to understand that as an asset class, public equity has a
certain tolerance for unpredictability and risk (lower tolerance compared to
venture or growth capital). Very predictable, mature industries like
utilities, industrials, and certain financial institutions offer relatively
stable cashflow through thoroughly understood revenue streams -- and thus they
benefit from a generally lower level of volatility. Technology firms on the
other hand (Facebook being a great example) have great elements of
unpredictability, along with high potential for growth, two conflicting forces
that factor into stock price.

Take, for example, Amazon. In its recent earnings announcement, Amazon posted
a loss on net income of $274 million. If Amazon replicated this result in
perpetuity, it would soon be a bankrupt company. Amazon's EPS is 0.07 cents
per share, giving it a price to earnings ratio of over 3,000. If you purchased
Amazon at its current price and if Amazon replicated this result in
perpetuity, it would take 3,000 years before you were paid back on your stock.

Now of course that's a silly analysis when you don't take into consideration
growth and expected future cash flow. Clearly investors factor in a tremendous
amount of growth in many large technology companies. However, investors are
not prescient. They need indicators on the likelihood of this future growth,
so factors like ad sales, product sales, new product growth, etc are extremely
important. Any major shifts either above or below their expectations changes
their growth estimates. Since a significant portion of their purchase price is
going into future growth, any changes to growth estimates will have a
magnified impact on valuation (i.e. price they're willing to pay).

Is there some speculation going on? Probably. But the mere act of investing in
the public equity of certain technology companies is a form of speculation.
And there's far more to how markets are made than can be distilled in a short
article, especially if we try to generalize the forces at play.

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TDL
1.Why is Wired writing about stock prices? Most of the financial media can
barely understand why prices fluctuate, why does Wired think they have a
better insight?

2.The stock market (particularly growth oriented firms) are about
expectations. If investors are betting that an outcome is going to occur and
they are wrong they will sell, it's that simple.

3.Stock price != the company. Don't confuse the two.

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hnriot
I should imagine that Wired can write about whatever their editors choose,
they are writing about tech companies and have done so in the past so I don't
see why this should be of any surprise. Wired might very well have better
insight than the financial media at large because they have intimate knowledge
of the workings of the tech industry, and since the "financial media"
completely failed to notice the impeding doom that was (is) the housing
crisis, it's not like the established financial sources are any better at this
stuff.

As for #2, this shows you have no clue about how the stock market works. Life
in the financial world is far far more complex than you imply.

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TDL
Since I was a trader for five years and help build an equity research firm, I
think I have enough domain knowledge to stand by the assertion I made in my
second point.

Wired may have a much better understanding of the technology and the
industries that these companies operate in, but I was discussing the
fluctuations of the stock price not the relevant business lines.

I will now re-iterate what I said earlier; stock price != the company. Don't
confuse the two.

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niggler
To be fair, a few months ago Wall Street was pricing in a series of miracles.
We are at a lower point in the tech hype curve.

Note: YTD AAPL is still up nearly 50%

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angdis
I agree with the first comment: "...so in other words the companies themselves
are fine and a bunch of asshole investors are playing with the market."

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TDL
That comment is utter nonsense and shows ignorance of stock markets. "Asshole
investors" aren't playing with the market, investors are reacting to
information that doesn't confirm their expectations, so they sell.
Furthermore, stock prices fluctuate for a variety of reasons and it's
ridiculous to ascribe malice to these price movements.

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angdis
One doesn't need "malice" to be an asshole. I am just sick of the stock price
driving too much of what happens in large companies. Obviously, stock-price
fluctuations aren't rational nor do they have a particularly strong
relationship with reality but they do impact the well-being of hard-working
people who might get canned just because wall-street has whimsically "decided"
to toggle their company's stocks for fun and profit.

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TDL
Employees are not fired because of a plummeting stock prices. Falling prices
are typically the by-product of the underlying business.

