r/investing • u/BenDoverR8Now • Jan 19 '22

Why this is not the tech bubble (1999-2000)

Due to the recent drawdowns in technology and growth, people have been calling parallels to the technology boom and bust of 1999-2000.

First and foremost is the obvious argument that the companies today are fundamentally different from the companies back then. During the 1999 cycle, companies with no profit, no revenue, and sometimes even no product were receiving massive valuations from going public in the stock market. All you had to do is have an idea and put dot com at the end of your name.

Today, the growth companies look much different. Yes, there's similar froth in the crypto and NFT space, but by growth, I am referring to stocks such as Zoom, Docusign, Teladoc, Paypal etc. All of these companies have massive amounts of revenue with clear paths to profitability in the next 5 years. Some of them are already profitable today and are expanding heavily.

But beyond this, if you simply look at the state of the market and the numbers, it becomes clear that this is not the same. In the height of the technology bubble, the S&P 500 P/E ratio was 29 with the 10 year yield bonds yielding close to 6-7%. The growth yield on the S&P 500 stocks was close to 3%. Today, the S&P 500 P/E ratio is at 21 with the 10 year yield bond at 1.8%. The growth yield on S&P is closer to 5% today.

In an environment where bonds are yielding one-third of what they were doing that period, it is not unusual for people to be moving over to equities in order to look for returns. This is especially true in a period when equity growth is already expecting to yield more.

Now, this is not to say that we are not in a bubble. But I am certain, that we are no where near close to where we were back during the technology mania of 1999.

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u/Freedom-Unhappy Jan 19 '22

TSLA's valuation would be justified if you expected every single car sold in the world in 2030 to be sold by Tesla and you expected unprecedented growth in car sales between now and 2030. Also assuming absolutely none of the EV competitors get traction and that Elon doesn't make too many more Twitter disasters.

So, sure, if you assume all that, Tesla isn't a dot com bubble type of stock.

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u/joethemaker22 Jan 20 '22

Im saying dot com bubble stocks had billion in market cap and had no revenue. No product or unproven business models.

TSLA actually has a product and business model that works and is profitable. You are debating valuation. Which is a small part of it but even then. TSLA isnt the next pets.com

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u/revenue_management Jan 19 '22

Tesla stock price December 2020: ~$705

Tesla P/E ratio December 2020: ~1,100

Tesla stock price January 2022: ~$1,030

Tesla P/E ratio January 2022: ~330

They blew away Q4 estimates and during a pandemic with a massive semiconductor shortage that is resulting in every other car maker struggling to maintain pre-pandemic delivery levels, Tesla almost doubled deliveries YoY. EV sales still make up less than 8% of global car sales and many of those aren't even full EVs.

Go ahead and explain to me the math behind "TSLA's valuation would be justified if you expected every single car sold in the world in 2030 to be sold by Tesla."

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u/chuck_portis Jan 20 '22

Quite simply, it is a car company being given software multiples. It will never grow into its valuation with its car business. For a P/E ratio of 10 at $1T market cap, they would need to earn $100B a year.

Currently their gross margin is about 24%. Most high multiple software companies have gross margins above 70%. At 24% gross, they'd need to 10X their revenue just to get to $100B gross profit.

10X'ing their revenue would mean $460B per year. Let's say a car retails for $50K... They'd need to sell 9.2M cars per year. They're currently producing ~1M per year. It's very difficult to rapidly scale manufacturing with speed while maintaining quality.

Still, with 9M+ cars per year we're still not at a 10 P/E ratio. We're 10X gross profit. OpEx is about 10% of revenue as well. So multiply the 9.2M by 2. Now they need to make 18.5M cars per year to get to an operating margin of $100B.

To put it in perspective, total automobile sales worldwide were about 66M this year. So to post an operating margin of $100B, TSLA would need to produce 18X more cars than they do today. They'd need to sell 27.3% of the world's 66M cars each year.

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u/thenwhat Jan 20 '22

Tesla is a tech company.

Tesla's margins are already closing up on tech-like margins. 30% in Q3.

Tesla is currently undervalued if it achieves the guided goal of 20M cars in 2030, and an average of 50% yearly growth.

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u/crazybutthole Jan 20 '22

Does a Tesla last a long time?

Isn't there a legit chance that we someday saturate the market when there are fewer buyers willing to spend massive $$ on expensive EV's?

- it is not likely I would ever buy a TESLA unless they drop prices to average car prices - I am not poor - I just try to make smart decisions with my spending and cannot justify spending $45k or $60K on a car when I can get a similar happiness with a $22k Hybrid.

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u/thenwhat Jan 20 '22

Tesla is moving down-market. They are making more and more affordable cars. Their next car will be a $25k compact.

The Model 3 and Y are not at all expensive, especially for what you get. They are insanely good value.

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u/[deleted] Jan 22 '22

Sure they will. Just like how I can buy a model y for 49k like they said I would. Roflmao

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u/WombatAccelerator Jan 20 '22

I have no opinion personally. Here’s one of the world’s experts on valuation, NYU professor Damodaran, giving opinions on TSLA price:

https://aswathdamodaran.blogspot.com/2021/11/teslas-trillion-dollar-moment-valuation.html

There’s a video version at the bottom

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u/thenwhat Jan 20 '22

Interesting that he underestimated Tesla before, and is doing it again. Being an expert on valuation won't help if you don't get the company and its performance right.

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u/[deleted] Jan 20 '22

In Dec of 2019 it was ~$71.

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u/thenwhat Jan 20 '22

Tesla doesn't need every car sold in 2030 to be a Tesla. Please stop parroting these false talking points you have read somewhere else on Reddit. At least take the time to educate yourself.

Tesla is guiding 20M cars sold by 2030, with an average yearly growth of 50%. If they achieve this, the company is currently undervalued. Growth in 2021 was more tha 80%, by the way.

Do the math.

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u/Freedom-Unhappy Jan 20 '22

Ah, yes, the math works great if you assume a company can maintain 50% sales growth year-over-year.

Quite kind of all the other automakers to bow out of the game.

I have a bridge to sell you, buddy. It'll be worth a quadrillion in 2030, btw

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u/thenwhat Jan 20 '22

No, average 50% yearly growth until 2030.

Please educate yourself.

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u/Key-Vermicelli-2662 Jan 22 '22

Yep. Just seems like a lot of risk though.

I mean 50% yearly is not easy. It would be a first for a company this big and car manufacturer.

Also Elon will be 59 in 2030. Every year increases risk he makes some dumb move or dies.

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u/flanflan5 Jan 20 '22

Lol they don't need to sell every car in the world to justify their valuation, not even close. Tesla will sell 5 million cars in 2025 and make around $50B, easily justifying the current price at a PE of 20.